Verrocchi v Messinis [2016] VSC 490

Supreme Court of Victoria|2016-08-17|Before: RIORDAN J

CONTRACT - Formation - Intention to create legal relations for sale of business - Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 - Document stated 'This Offer is intended to be legally binding upon the Vendor and the Purchaser' and was 'Executed as an Agreement' - Where plaintiff purchaser sought specific performance of the contract - Where defendant alleged agreement to negotiate, rather than sell - Contemplation of future 'formal' contract of sale - Failure of parties to agree to 'formal' terms - The relevance of the post agreement communications - Vendor later signs contract with third party.

A declaration that the Agreement dated 27 May 2016 is and was effective at law and binds the defendant to convey to the second plaintiff, as nominee for the first plaintiff, the pharmacy business ... .
An order that the defendant specifically perform the Agreement dated 27 May 2016 and do all things necessary to convey to the second plaintiff in accordance therewith the pharmacy business ... .

An interlocutory and permanent injunction restraining the defendant by himself, his servants or agents or howsoever from:

(1) entering into any contract of sale, or completing or settling any contract of sale, or any other arrangement transferring or disposing, of the business ..., other than to the second plaintiff; and

(2) otherwise encumbering the said Business or the assets thereof, or dealing with the Business in any way, other than in the ordinary course of business, save as necessary to convey the said Business to the second plaintiff.

D. Alternatively to B above, damages in lieu of specific performance.

2 The defendant defends the proceeding on the basis that the alleged contract was not enforceable because at the time of its execution there was no intention to enter into a legally binding contract to sell the pharmacy business.[1]

3 In May 2016, negotiations between Mr John Pamouktsis of Administration and Marketing Solutions Pty Ltd, as agent for the first plaintiff, and Mr Robert Whelan of Australian Pharmacy Sales Pty Ltd, as agent for the defendant, resulted in an agreement of the 'commercial terms' of the proposed sale; and Mr Whelan prepared the form of the alleged contract on 27 May 2016.

4 On 27 May 2016, the form of the alleged contract was emailed by Mr Whelan to Mr Pamouktsis.

5 On 30 May 2016, the first plaintiff signed the form of the alleged contract, which was then emailed to the defendant's agent Australian Pharmacy Sales Pty Ltd.

6 On 2 June 2016, the alleged contract now executed by both the first plaintiff and the defendant was emailed to the first plaintiff's agent Australian Pharmacy Sales Pty Ltd. A copy of the alleged contract, as executed, is annexed as a schedule to these reasons.

7 The relevant contents of the alleged contract include the following:

(a) It is entitled 'Offer to Purchase Melbourne City Pharmacy'.

(b) The front page is dated Friday 27 May 2016 and included a description of the 'Business' and the 'Business Premises', together with the names of the 'Vendor' and his solicitor and agent; and the name of the 'Purchaser' and his solicitor.

(c) On the front page it also stated 'Status of this Offer: This Offer is intended to be legally binding upon the Vendor and the Purchaser'.

Offer Details:

The Purchaser hereby offers (Offer) to purchase the Business, subject to the terms of this Offer, for a total purchase price of $1,400,000AUD (Purchase Price), to be allocated as follows:

Goodwill, Fixtures, Fittings & PBS Approval Number

Settlement Date:

If this Offer is accepted by the Vendor within 3 business days of its date, the Settlement Date will be scheduled for 28th June 2016, or such other date as may be agreed between the Vendor and the Purchaser.

Payment Details:

The Purchaser agrees to pay the Purchase Price as follows:

An initial deposit of $10,000AUD payable on trust to Australian Pharmacy Sales Pty Ltd Trust Account (NAB, BSB ...) within three (3) business days of the Vendor accepting this Offer by signing and returning it to the Purchaser;
A further $130,000 payable to Australian Pharmacy Sales Pty Ltd Trust Account, upon execution of the Contract of Sale of Business by the Vendor and the Purchaser.

$1,060,000 representing the balance of the Purchase Price (excluding stock); and
$200,000 representing a stock payment (Stock Deposit), $170,000 of this will be paid directly to the Vendor and $30,000 will be paid to Australian Pharmacy Sales Pty Ltd Trust Account pending receipt of final stock sheet delivered to the Vendor and Purchaser by the Stocktaker.

Conditions Precedent to Settlement:

This Offer is subject to:

The Purchaser completing due diligence investigations into the Business to its satisfaction within 5 days of receipt of all requested information (Inquiry Period). The Purchaser agrees to submit the complete request for information in writing no later than 3 business days after acceptance of this offer; and [sic]

Formal Contract of Sale:

Upon acceptance of this Offer, the Purchaser and Vendor agree that they will as soon as practicable negotiate and execute a formal Contract of Sale of Business prepared by the Vendor's lawyers. The Contract of Sale will contain all of the general terms and conditions as those usually included in a Victorian Standard Contract for Sale of Business (with any state-specific legislative references updated to reflect those of the State in which the Business is situated) plus further conditions precedent and special conditions relating to the sale of the Business as set out in principle below:

Issue to the Purchaser on Settlement Date of a new Medicare Pharmaceutical Benefits Scheme ("PBS") Approval Number by Medicare Australia for use in conduct of the Business, contemporaneously with the cancellation of the Vendor's current PBS Approval Number - this will be a condition precedent; and
All necessary approvals being granted to the Purchaser by the Pharmacy Council or Authority in the State in which the Business is situated to enable the Purchaser to conduct the Business at the Premises from the Settlement Date - this will be a condition precedent;
The Landlord of the Business Premises consenting to the transfer of the existing Business Premises Lease to the Purchaser - this will be a condition precedent;
A valuation of stock being carried out at the close of business after the last trading day prior to the Settlement Date by a reputable independent stocktaker ("Independent Stocktaker") in accordance with stock valuation procedures and terms as per standard industry practice (eg. all stock with an expiry date of less than three (3) months to be excluded) with the Independent Stocktaker's costs to be shared equally between the Vendor and the Purchaser noting that if the stock valuation exceeds the maximum stock value the Independent Stocktaker will determine which stock is to be excluded where the Vendor and Purchaser cannot so agree;
Transfer to the Purchaser at Settlement of:

all records, computer files, software and passwords, telephone and facsimile numbers, email addresses, websites, security alarm codes and all other usual services currently used or connected to the business; 2. all fixtures, fittings and equipment owned by the Vendor and used in the Business;

any applicable banner group or similar franchise agreement relating to the Business Premises;
Termination by the Vendor of all of its employees on the Settlement Date and re-employment of current employees as selected by the Purchaser. The Vendor must allow adjustments to the Purchase Price for the tax-affected monetary value of annual leave and long service leave of those employees transferring to their present entitlements at Settlement to the Purchaser;
The Vendor and Purchaser agreeing that the sale of the Business constitutes the sale of a "going concern" for GST purposes.

The first plaintiff and the defendant signed at the foot of the document under where it was stated 'Executed as an Agreement'.

8 By email on 7 June 2016 to the solicitor for the plaintiffs, the solicitor for the defendant stated as follows:

I act on behalf of Theo Messinis in relation to the above sale.

Please find attached the following:

1. Contract of Sale;

2. Staff details;

3. Lease of Real Estate.

It is noted that settlement is to be effected on 28 June 2016. I therefore would be pleased if you would provide your response as soon as possible so that we may proceed to execution and notify the Landlord.

In anticipation of approach to the Landlord please provide the following:

1. Confirmation of Nomination (if any)

2. Details of Financial circumstances of Nominee

3. Trade/business references

I anticipate that the Landlord will have an application for completion. Assignments are dealt with in clause 5 of the Lease.

I await your response.

9 The attached draft contract was in the standard copyright form of contract for the sale of a business approved by the Law Institute of Victoria under s 53A(1)(a) of the Estate Agents Act 1980 (Vic) ('the LIV Form'). The form was as approved in 2010 and, excluding annexures, consists of 39 pages.

10 By email on 8 June 2016 to the defendant's solicitors, the plaintiffs' solicitors attached the draft Sale of Business Contract with marked-up changes and suggested that the proposed settlement date of 28 June 2016 was 'over ambitious' and suggested a new settlement date of 11 July 2016. This draft introduced the second plaintiff as the purchaser pursuant to the nominee provision in the alleged contract. The proposed amendments were extensive but the defendant relied upon the following:

(a) The stock deposit was reduced to $140,000 (it was $170,000 in the alleged contract) or 70% of the provisional stock value as determined by the valuer whichever was the lesser sum.

(b) The limitation on Vendor's Warranties for a period of six months from the date of settlement was deleted.

(c) The Purchaser sought to make adjustments for the liability for long service leave for employees of less than 5 years' service.

11 By email on 10 June 2016 to the plaintiffs' solicitors, the defendant's solicitors provided a further marked up version of the contract of sale and agreed to move the settlement date to 11 July 2016.

12 By email on 14 June 2016 to the defendant's solicitors, the plaintiffs' solicitors attached a draft contract with further marked up amendments and included the following specific responses:

My client will agree to increase the stock deposit from $140K to $170K but this stock deposit must be held in your firm's trust account pending determination of the final valuation for stock

My client must be at liberty to make offers to employees on such terms and conditions as he deems fit - we have included a proviso that he comply with the law in making such offers

My client does not accept the treatment of adjustments for LSL and personal leave. As a compromise, my client requires an adjustment:

- For pro rata LSL of transferring employees with at least 2 years' of service
- 70% of personal and sick leave entitlements

Please have your client complete the attached spreadsheet for employees.

My client will not agree to limit warranty claims to those made within 6 months of the Settlement Date. As a compromise, he will agree to claims be limited to those made within 24 months after settlement.

Pages 12, 56 and 58 are missing from the Lease supplied. Kindly re-send a complete copy of the Lease at the earliest.

Please also confirm:

- Whether there is a sublease in place, noting that the tenant under the Lease is not the vendor but another entity - "Barclays Consulting Group Pty Ltd"
- The current annual Rental paid under the Lease
- Whether the Rent specified in the Lease is a gross lease and if not, the current outgoings paid by the tenant per annum - please send the last invoice for rental/outgoings from the landlord.

13 On or about 15 June 2016, the first plaintiff paid the deposit of $10,000 to Australian Pharmacy Sales Pty Ltd account, as provided in the alleged contract; but 10 days after it was due.

14 From on or before 15 June 2016, the defendant recommenced negotiations with a third party for the sale of the pharmacy business. The evidence was that prior negotiations had resulted in a heads of agreement between the defendant and the third party on 3 May 2016; but the sale had not proceeded at that time.

15 By email on 17 June 2016 to the defendant's solicitors, the plaintiffs' solicitors stated as follows:

Further to our discussion yesterday, kindly confirm your instructions with a view to finalising the Contract.

As discussed re stock deposit: as an alternative to having a stock deposit held in trust, my client will agree to pay 30% of the provisional stock value assessed by the stock taker at settlement, with the balance to be paid within 7 days of the determination of the final stock value.

I look forward to hearing from you.

16 On 20 June 2016, the defendant made arrangements to permit the plaintiffs' builder to inspect the pharmacy.

17 By email on 21 June 2016 to the defendant's solicitors, the plaintiffs' solicitors asked for confirmation that 'the contract is now in order for signing by the parties, by tomorrow.'

18 By email on 22 June 2016 to the plaintiffs' solicitors, the defendant's solicitors stated:

I have managed to speak/email Theo and have raised some issues regarding the following;

1. Your amended proposal regarding the stock deposit;

The employment offer to transferring employees. I am satisfied with my enquiries with Fair Work but will require an indemnity from your client. If as you state, there is no issue, then the provision of an indemnity should just be a formality;
I am waiting on Theo's confirmation re the transferring employee adjustments;

4. The warranty limit should be reduced from 24 months.

As you are aware Theo's wife is quite ill and it has been difficult obtaining instructions due to Theo's timing. Unfortunately I am out of the office between 12 and 5.30 pm today.

I anticipate that I should receive instructions from Theo but will be unable to attend to them until my return. Therefore your client's indulgence is requested until tomorrow midday.

19 By email on 21 June 2016 to the defendant's solicitors, the plaintiffs' solicitors asked 'Any update?'.

20 On 23 June 2016, the defendant entered into a contract for the sale of the pharmacy business with the third party.

21 By text message on 25 June 2016 to Mr Pamouktsis, the defendant stated:

Good morning John have just received a message from Kathy [the defendant's solicitor] that our deal has fallen over?'.

This is the first I've heard of this. Our last correspondence of exchange with your solicitor was last Thursday.

Only two issues outstanding were stock deposit (you wanted a portion paid directly at settlement - we offered 30% upfront with balance placed into the trust account pending final stock value - stock deposit of $170K and max stock value of $200K) and limitation of the warranties (you wanted any claims to be brought within 6 months and we offered 24 months) - apparently tour [sic] solicitor is waiting on instructions from you.

From our end, everything is in order to proceed with the sale. Let's finalise this ASAP.

23 By email on 27 June 2016 to the plaintiffs' solicitors, the defendant's solicitors terminated negotiations stating as follows:

My apologies for the delay in responding to you. As you are aware my client is currently on leave overseas, hence the delay in obtaining instructions.

Following discussions with my client it is clear that this transaction cannot proceed due to the parties fundamental differences and failure to reach agreement as to the following fundamental proposed contractual terms, amongst other issues:

1. Mode of payment for stock and amount of stock deposit;

2. Extension of time for post settlement warranties;

3. The matters relating to transferring employees are not accepted.

Given this, no agreement has been reached or is pending, and we are instructed not to proceed with any further discussions or negotiations in relation to the matter.

24 The issue for determination is whether the plaintiffs have established that the parties intended, by the execution of the alleged contract, to enter into a legally binding agreement for the sale of the pharmacy business. The defendant accepted that the parties had expressly stated that the alleged contract was 'intended to be legally binding upon the Vendor and the Purchaser' but contended that what was in fact intended to be binding was an agreement to negotiate a formal contract of sale of business.

25 In support of this contention, Mr Panna QC who appeared on behalf of the defendant, submitted as follows:

(a) Where a sale agreement refers to the execution of a more formal agreement, the inference, which would ordinarily be drawn, is that no binding contract is intended until after execution of the formal contract.[2]

(b) An intention to enter into a binding agreement without a formal contract should not be readily inferred when the subject matter of the sale is a transaction such as a substantial pharmacy business.

(c) Although the essential terms had been agreed,[3] the number and significance of the terms that had not been agreed, supported the inference that the parties did not intend to enter into a binding contract for the sale of the business at the time of signing of the alleged contract.

(d) Following the signing of the alleged contract, the difficulties encountered by the solicitors in resolving issues in negotiations demonstrated the significance of the issues in respect of which the parties had not agreed. The significance of the issues which had not been agreed indicated that the parties had not intended to enter into a legally binding agreement.

(e) The failure to agree on numerous terms was not resolved by the reference, in the alleged contract, to the contract of sale containing 'all of the general terms and conditions as those usually included in a Victorian Standard Contract for Sale of Business'. The Court could not be satisfied whether and to which form of contract the parties had intended to incorporate. In particular, the alleged contract did not refer to the LIV Form nor any other particular standard contract of sale.

26 The plaintiffs submitted that the evidence established that the parties had evinced an intention that they would be legally bound by the alleged contract to respectively buy and sell the pharmacy business for the following reasons:

(a) The alleged contract expressly stated that it was intended to be legally binding upon the Vendor and the Purchaser.

(b) The alleged contract was signed by each party as 'Executed as an Agreement' by each party.

(c) The subsequent conduct of the parties' lawyers was at worst equivocal; and reflected no more than the attempts by each party to give effect to the clause of the alleged contract requiring the preparation of a 'formal Contract of Sale of Business'.

(d) The alleged contract was very specific as to the terms, whilst leaving the parties to formalise their agreed terms in a formal contract as per the second category in Masters v Cameron;[4] or alternatively, to expand the agreed terms in a formal contract within the fourth class of Masters v Cameron.[5]

(e) The requirement that the Contract of Sale would contain all of the general terms and conditions as those usually included in a Victorian Standard Contract for Sale of Business was a reference to the LIV Form applicable at the time.

(f) The fact that the standard contract, referred to in the alleged contract, was the LIV Form should be inferred from the following:

(i) The only alternative form referred to in the evidence was the 'Standard Form Sale of Business Contract' ('the Agent Form') prescribed by the Estate Agents (Contracts) Regulations 2008. Section 53A of the Estate Agents Act 1980 provides that an agent may 'fill up' this form prescribed under the Regulations without committing an offence under s 10 of the Legal Profession Uniform Law (Victoria). As it was contemplated under the alleged contract that the formal contract would be prepared by the Vendor's solicitors, the contract prescribed under the Estate Agents (Contracts) Regulations 2008 would not have been considered appropriate.[6]

(ii) Mr Rotstein, the solicitor for the plaintiffs, gave evidence that he has extensive experience in acting on the sale of pharmacy businesses and that he had not seen the Agent Form for over 7 years. With respect to the LIV Form, he said as follows:

As a general rule, I don't see the standard Law Institute of Victoria contract used all that often. Most firms have developed their own form of contract and parties usually negotiate from there, but to the extent that there is a standard contract, the only standard form contract I have seen in the last seven years of practice is the Law Institute of Victoria standard form of contract with special conditions.

(iii) The defendant's solicitor drafted the proposed formal contract on a LIV Form, albeit the earlier 2010 version.

27 The principles to be applied in determining whether the parties intended to enter into a binding contract in circumstances where a subsequent formal contract is contemplated are well established.

28 In Masters v Cameron[7] the High Court said that:

Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes

(a) The parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound but propose to have the terms restated in a form which will be fuller or more precise but not different in effect.

(b) The parties have completely agreed upon all the terms of their bargain and intend no departure from the terms, but have made performance of one or more of the terms conditional upon the execution of a formal document.

(c) The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

29 A fourth category, by way of variation on the first category, was suggested by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd[8] being where the parties intend to be bound immediately by the terms on which they have agreed while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.

30 This fourth category has been accepted in many subsequent cases[9] and was confirmed on appeal.[10] However, the Court of Appeal did not appear to adopt the nomenclature of an additional category. Rather McHugh JA said as follows:

However, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances.[11] If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.[12]

31 The concept of a fourth category has also been the subject of some criticism.[13] However, I adopt the approach of Giles JA in Tasman Capital Pty Ltd v Sinclair[14] who observed that 'the categorisation does not greatly contribute to the decision in the particular case' because whether or not the Court will find a contract is determined, in each category, by whether the parties intended to be legally bound to the informal agreement - such intention being objectively ascertained.

32 In searching for the 'intention to create contractual relations' the Court is required to undertake an objective assessment of the state of affairs between the parties both before, at the time of, and after the entry into the disputed agreement. The circumstances that are properly taken into account 'are so varied as to preclude the formulation of any prescriptive rules'. However, what is considered is that which is objectively 'conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened'. What is not considered is the uncommunicated subjective motives or intentions of the parties, which are irrelevant.[15]

33 The central question has been described as 'What would a reasonable person infer or deduce from observing the totality of the dealings between the parties?'[16]

34 Matters which have been considered relevant in undertaking this assessment have included the following:

(a) Where the disputed agreement is in writing, the words used by the parties must be the strongest indicator of whether the parties intended to be legally bound. If, on proper construction of the document, it is sufficiently clear that the parties were content to be bound immediately, then the matter is resolved irrespective of the subject matter, magnitude or complexity of the transaction or whether the parties contemplated a further contract in substitution for the first contract.[17]

(b) The detail of the terms, to which the parties descended in the disputed agreement, may indicate whether the parties did or did not intend to be immediately bound. As was stated by Powell JA in Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd:

In carrying out the task of determining ... what was the relevant intention of the parties, a court may have regard, not only to the matters upon which the parties have reached their consensus, but also to the areas in respect of which they have failed to reach any consensus.[18]

(d) An informal agreement which deals with a transaction of great magnitude or complexity 'may suggest that the informal agreement was not intended to constitute a binding contract'.[21]

(e) The established or common practice of agreements of the type in question may indicate that the parties did not intend to be finally bound until the completion of a formal contract.[22] An example of such a practice is with respect to the sale of real estate.[23]

35 With respect to the relevance of the post agreement communications, the courts have considered that such communications may be relevant to the following:

(a) Admissions by conduct of the existence or non-existence of a legally binding contract.[24]

(b) Throwing light upon the meaning of the language in the disputed agreement for the purpose of determining whether the language expresses an intention to enter or not enter contractual relations.[25]

(c) Whether and to what extent there were uncompleted negotiations between the parties; and the significance of the uncompleted issues.[26]

36 The unusual feature of this case is that the defendant concedes that by the execution of the alleged contract, the parties did intend to enter into a legally binding contract. This concession is not surprising because the terms of the document state that 'This Offer is intended to be legally binding upon the Vendor and the Purchaser'; and each party signed the document as 'Executed as an Agreement'.

37 Further, although the defendant contended that the issues unresolved in the alleged contract were indicative of the lack of an intention to be legally bound to the sale of the pharmacy business, it was not contended that essential terms were absent from the alleged contract such that, if the parties did intend to enter into such a binding contract, it would be void for uncertainty.

38 Accordingly, this Court is required to determine whether:

(a) as contended by the plaintiffs, the parties intended to enter into a binding contract for the sale of the pharmacy business; or

(b) as contended by the defendant, the parties intended to enter into a binding contract to negotiate with respect to the sale of the pharmacy business.

39 For the following reasons, I consider that the intention of the parties, on execution of the alleged contract, was to enter into a binding contract for the sale of the pharmacy business.

40 The alleged contract was the product of negotiations between Mr John Pamouktsis, a property manager employed by Administration and Marketing Solutions Pty Ltd on behalf of the plaintiffs and Mr Robert Whelan of Australian Pharmacy Sales Pty Ltd as agent for the defendant. The alleged contract was prepared by Mr Whelan after, as Mr Pamouktsis deposed, the 'commercial terms in the agreement' had been 'discussed and agreed to' by those agents.

41 The Offer Details in the alleged contract state 'The Purchaser hereby offers (Offer) to purchase the Business subject to the terms of this Offer, for a total purchase price of $1,400,000AUD (Purchase Price) ...'. In my opinion, the offer is a clear statement of the terms by which the first plaintiff, as the offeror, was prepared to be bound to purchase the pharmacy business, on acceptance of the offer by the defendant.

42 By the alleged contract, the settlement date was scheduled for 28 June 2016 'If this Offer is accepted by the Vendor within three business days of its date'. In my opinion, this provision is very difficult to reconcile with a contention that the alleged contract is simply an agreement to negotiate. The acceptance referred to must be the acceptance of the offer 'to purchase the Business'.

43 The alleged contract included details of payment of the agreed Purchase Price including a $10,000 deposit payable 'within three (3) business days of the Vendor accepting this Offer by signing and returning it to the Purchaser'. Although I accept that the payment of a deposit, particularly a small deposit, does not compel a conclusion that the parties had entered into a binding contract of sale,[27] such a requirement is not indicative of the alleged contract only relating to an intention to negotiate.

44 Apart from the provisions with respect to the calculation and payment of the Purchase Price, the payment of the Purchase Price and due diligence, the alleged contract provides for the following:

(a) The issue of any Medicare pharmaceutical benefit scheme approval number as a 'condition precedent'.

(b) All necessary approvals by the Pharmacy Council or authority to enable the plaintiffs to conduct the business as a 'condition precedent'.

(d) Provisions with respect to the valuation of stock by an independent stocktaker and the determination of what stock is to be excluded, if the maximum stock value is exceeded.

(e) The transfer to the Purchaser at settlement of:

(i) all records and ancillaries currently used or connected to the business;

(ii) all fixtures, fittings and equipment owned by the defendant and used in the Business;

(iii) any applicable banner group or similar franchise agreement relating to the Business Premises.

(f) The termination by the Vendor of all of its employees on the settlement date and re-employment of current employees as selected by the Purchaser, together with the adjustment of the Purchase Price for the 'tax-affected [sic] monetary value of annual leave and long service leave' of those employees transferring to the plaintiffs.

(g) The sale constituting a 'going concern' for GST purposes.

45 In my opinion, the comprehensive nature of these commercial provisions is indicative of the parties intending the alleged contract to be an immediately binding contract of sale and not merely an agreement to negotiate.

46 The provision with respect to 'formal Contract of Sale', in plain words, required not only that the parties, as soon as practicable on acceptance of the Offer, 'negotiate' but also 'execute a formal Contract of Sale of Business'. In my opinion, although the alleged contract plainly contemplated the entry into a formal contract of sale of business, the term requiring the parties to both negotiate and execute such a contract is neither consistent with an intention merely to negotiate nor a 'category 3' Masters v Cameron agreement.

47 With respect to the provision that 'the Contract of Sale will contain all of the general terms and conditions as those usually included in a Victorian Standard Contract for Sale of Business, as earlier observed:

(a) The plaintiffs submitted that the provision incorporated the LIV Form which was current at the time of the execution of the alleged contract; and

(b) The defendant submitted that the vagueness of the provision was indicative that the parties did not intend, by the execution of the alleged contract, to be bound for the sale of the pharmacy business.

48 I reject to the plaintiffs' submissions for the following reasons:

(a) The plain reading of the relevant terms does not disclose an intention that the parties intended to incorporate a particular form of contract of sale of business. If the parties had intended to do so, it might be expected that they would have referred to either the LIV Form or the Agent Form. Further, the use of the indefinite article in 'a Victorian Standard Contract' is not consistent with the parties intending to incorporate any particular form.

(b) The evidence of the solicitor for the plaintiffs that he had not seen the Agent Form for over 7 years and that he does not 'see the standard Law Institute of Victoria contract used all that often' does not, in my opinion, lead to the conclusion that the parties must have intended to incorporate the LIV Form. Further, I note that there was no challenge to the evidence of the defendant's solicitor that the Agent Form was currently available on the Consumer Affairs government website for members of the public to download.

49 I also reject the defendant's contention for the following reasons:

(a) The only terms which were to be incorporated in the formal contract of sale were 'the general terms and conditions ... usually included in a Victorian Standard Contract for Sale of Business'. Such terms were clearly distinguished, in the alleged contract, from the 'further conditions precedent and special conditions relating to the sale of the Business' which were set out immediately thereunder.

(b) In my opinion, the general terms and conditions are likely to relate to non-contentious issues such as apportionment of outgoings, machinery provisions and other matters, 'all familiar objects for which it may well be there is a form which is commonly adopted'.[28]

(c) If such general terms and conditions were not able to be so ascertained, that would be a matter of proof and the burden of establishing that fact would fall on the defendant, as the party making the contention.[29] I do not consider that the evidence of either solicitor addressed the question of whether there were such general terms and conditions.

(d) Even if a proper reading of the alleged contract contemplated that the parties were to negotiate the general terms and conditions, I do not consider that a failure to agree should result in a finding that the parties did not intend to be bound to the terms on which they had agreed. A similar argument was rejected in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd[30] in which the New South Wales Court of Appeal considered whether the parties intended to be bound to an informal agreement for the sale of a commuter airline service business, which included the following term:

Appropriate conditions in the annexed form of contract of sale of business, together with any additional terms and conditions recommended by the parties' legal advisers shall apply.

Mahoney JA did not consider that the clause indicated that the parties did not intend to be immediately bound because '[t]o the extent that the legal advisers could not agree upon "any additional terms and conditions" the agreement, and therefore the contract, between the parties would be that which they themselves had settled.'[31] Similarly, Hope JA concluded 'the words "proposed agreement" should be construed as referring to such an intended document, containing the terms of the executed document, and also, if the parties' solicitors agreed and so recommended, additional terms and conditions'.[32]

50 In my opinion, the fact that the parties, after setting out all of what they considered to be the 'commercial terms', then stated that the balance of the contract would contain general terms and conditions as those usually included in a standard contract is indicative of the parties intending to complete a comprehensive document, which would legally bind them for the sale of the business.

51 Further, I do not consider that the fact that the respective solicitors were not able to finalise the terms of the formal contract of sale of business (before the defendant agreed to sell to the third party) supports the proposition that there were substantial differences between the parties such as to indicate a lack of intention on behalf of the parties to be contractually bound for the following reasons:

(a) The alleged contract set out the 'commercial terms' and only contemplated the addition of the general terms and conditions usually included in a standard contract for the sale of business. The matters in dispute between the solicitors such as restraint of trade or confidentiality, lease and landlord requirements, termination of employees and transfer of stock are unlikely to fall within the ambit of 'general terms and conditions'. In fact, the plaintiffs' solicitor specifically removed these matters to a section headed 'Special conditions forming part of this contract'.

(b) The differences identified in the discussions between the solicitors, which I do not accept to be so significant as to indicate a lack of intention of the parties to be bound, substantially arose because each solicitor adopted their own preferred forms and drafted a formal contract which went beyond incorporating the expressly agreed terms together with usual general terms and conditions. I do not intend this to be a criticism of the solicitors but I consider that it was prompted by the desire to use the formal contracts with which each was familiar rather than an indication that the parties to the alleged contract had not intended to be bound.

(c) In my opinion, the inability to resolve the differences after 15 June 2016, was most likely the result of the defendant negotiating a contract with the third party.

52 In the circumstances, I am satisfied that on the balance of probabilities the parties intended, on execution of the alleged contract, to be legally bound by the agreement to sell the pharmacy business on the terms expressed within the alleged contract. Accordingly, I propose to make a declaration substantially in the form sought by the plaintiffs and I will hear the parties on consequential orders and whether the third party should be given the opportunity to be heard on whether there should be an order for specific performance.

[1] On the second day of the trial, the defendant withdrew its pleaded defences based on repudiation and estoppel.

[2] Elgas Ltd v AJ Young Industries Pty Ltd (1987) NSW Conv R 55-329, 57,016 (McHugh JA); Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd [2000] VSC 155, [28].

[3] The defendant did not contend that the contract would be otherwise void for uncertainty.

[4] [1954] HCA 72; (1954) 91 CLR 353, 360 (Dixon CJ, McTiernan and Kitto JJ).

[5] See Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622.

[6] The Law Institute Standard Contract may also be filled up under section 53A of the Estate Agents Act 1980.

[7] [1954] HCA 72; (1954) 91 CLR 353, 360 (Dixon CJ, McTiernan and Kitto JJ).

[9] See, for example, Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486, 494-495 (Ipp J); Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101, 110 [24] (Ipp J, Pidgeon J agreeing); Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44, [86]-[88] (Handley AJA).

[10] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634-635. (McHugh JA, with whom Kirby P and Glass JA agreed).

[11] Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629, 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 332-4, 337.

[12] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634.

[13] See E Peden, J Carter and G Tolhurst, 'When Three Just Isn't Enough: The Fourth Category of the "Subject to Contract" Cases' (2004) 20 Journal of Contract Law 156.

[14] [2008] NSWCA 248 [26] (with whom McColl JA and Young CJ agreed); a decision reported in [2008] NSWCA 248; (2008) 75 NSWLR 1 but the relevant portion is not included.

[15] Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, [25] (Gaudron, McHugh, Hayne and Callinan JJ).

[16] Goulburn-Murray Rural Water Authority v Rawalpindi & Anor [2010] VSC 166 [153] (Ross J).

[17] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA); Sinclair, Scott and Co v Naughton [1929] HCA 34; (1929) 43 CLR 310, 317.

[19] Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 362 (Dixon CJ, McTiernan and Kitto J).

[20] Niesmann v Collingridge [1921] HCA 19; (1921) 29 CLR 177, 182 (Knox CJ).

[21] Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106, 138 (Brooking J).

[22] Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd [1994] NSWCA 361, 40 (Powell JA); approved in Geebung Investments Pty Ltd & Anor v Varga Group Investments No 8 Pty Ltd (Unreported, New South Wales Court of Appeal, Kirby P, 11 October 1995) 33.

[23] Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 9329, 9335; Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd [2000] VSC 155, [29] (Mandie J).

[24] Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97,023, 9255 (McClelland J).

[25] Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 550 (Gleeson CJ).

[26] Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 97,023 at 9255.

[27] See Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 364.

[28] Goodwin v Temple (1956) 180 CLR 68, 77 (Dixon CJ, McTiernan and Kitto JJ) considering an option agreement providing for a sale contract 'embodying all usual conditions'.

[30] (1985) 2 NSWLR 309 (Hope, Mahoney and McHugh JJA).

Agents (Contracts) Regulations 2008

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Judgment (174 paragraphs)

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Cases Cited (13)