Effect of Exchange of Materially Different Counterparts - Decision
49 Considering the correctness of Mr Sneddon's argument requires an examination of precisely what was decided in Sindel v Georgiou. A somewhat full understanding of the facts of that case and the issues involved in it can be gathered from the report of the decision of the Court of Appeal from which the High Court appeal was brought: Georgiou v Sindel [1982] 1 NSWLR 435.
50 Prior to an auction of real estate, the vendor's solicitor had prepared forms of contract, which left blank the name of the purchaser, the purchase price and the deposit. The vendor, who was not present at the auction, had signed one of these counterparts. The vendor's solicitor was present at the auction, armed with these preprepared contracts. Mr Georgiou was a real estate agent, and thus well familiar with the practice of entering contracts for sale of land by exchanging counterparts. He attended the auction, intending to bid on behalf of another person. The property was passed in at the auction, but agreement was reached after the auction between Mr Georgiou and the vendor's solicitor (who appears to have had authority from the vendor to agree on them) on the price and terms. They exchanged forms of contract, which, unknown to them, were not identical in that some details that they had agreed on were omitted. The counterpart that Mr Georgiou received bore the vendor's witnessed signature, but the spaces for the purchaser's name, price and deposit were still blank. The counterpart that the vendor received named as purchaser Mr Georgiou or his nominee, stated the purchase price and the deposit, and was signed by Mr Georgiou. As well, Mr Georgiou handed over a cheque for the agreed deposit.
51 When the vendor later purported to rescind, Mr Georgiou sought specific performance in the Equity Division of the Supreme Court. The trial judge refused specific performance, on the grounds that the exchange of the non-identical counterparts meant that there was no contract. An appeal against that decision succeeded in the Court of Appeal (per Reynolds and Glass JJA, Samuels JA dissenting). An appeal to the High Court against the Court of Appeal's decision failed.
52 In the Court of Appeal Reynolds JA said, at 441:
"… the only question is whether at the end of the day the parties had agreed on all the terms and manifested an intention to be bound thereby. In my view that question must be answered in the affirmative. Once the price was agreed the appellant accepted all the other terms of the bargain proffered by the respondent and manifested this acceptance by signing a copy of them and the respondent manifested his acceptance by having his solicitor witness his signature and handing over a copy. The parties intended no further step to be taken before the bargain gained legal efficacy. …
The contract in this case was pleaded as a written contract and, in my view, it was. It had its origin in the acceptance and recognition by both parties of the contract which the purchaser signs as containing the authentic expressions of the terms of the contract been made by them
… the parties by their words and conduct declared their will in accordance with the terms expressed in the document which was complete and signed by the purchaser and it does not matter for this purpose that the vendor did not sign that document…
It is not the law that a contract for the sale of land is invalid if it is not signed by both parties. In such a case the acceptance by one or both parties of a written document as containing the authentic expression of the contractual terms may be effected otherwise than by execution of the document. The instrument may be executed by one of the parties and accepted by the other without execution by that other. Further, there may be a completed contract in writing between A and B where B orally agrees to the terms of A's offer contained in an unsigned document produced by A."
53 He dealt with the fact that the ordinary inference from the parties showing that they intended to contract by exchanging contracts was that it was the exchange of identical counterparts that would constitute the contract by saying, at 442:
"In my view, the fundamental principle must be that if parties have the requisite consensus and an offer is accepted with the intention that the agreement be legally binding, then it does not matter that there had been an earlier proposal to enter into a binding contract in some other manner."
54 Glass JA, at 448-449, said:
"… the analyses proffered on both sides of the argument agree that a consensus upon terms had been reached and that there was a common intention to cause that consensus to fructify into a binding agreement by the mutual delivery of signed documents. The point at which the analyses divide is that the plaintiffs' claim that the intention to bind was identified with an exchange of the actual documents which passed between them whereas the defendant asserts that the intention was limited to the exchange of identical documents in accordance with the well established conveyancing practice.
In my opinion the plaintiffs' analysis should be accepted in preference to that of the defendant. I consider that the ratio of Harrison and Domb is distinguishable. In those cases the substantial identity of the documents exchanged was insisted upon as the necessary condition of a binding agreement because it provided evidence otherwise lacking that a consensus on terms had been reached. The evidence here establishes that the parties were ad idem on all the terms of the bargain before any exchange occurred. The plaintiff Georgiou acting for himself and the defendant's agent and solicitor acting for him had hammered out the terms acceptable to both sides upon which the property was to be bought and sold. Those terms consisted of the printed and typed conditions appearing in both copies and the three additional terms which had been negotiated inter partes and then inserted in the vendor's copy. At that moment there existed a complete correspondence between the offers made and accepted on both sides. It was understood by both negotiating parties that the settlement of the terms of a contract for the sale and purchase of land would not produce a binding agreement unless this accord was consummated by some ceremony which constituted a mutual acknowledgement that the bargain had been struck: Eccles v Bryant and Pollock [1948] Ch 93; Summit Properties Pty Ltd v Comserv (No 784) Pty Ltd (Court of Appeal, 26th June, 1981, unreported). However, no particular form of ceremony is legally requisite. A handshake will be sufficient and so would the common assent to the statement of a bystander that they now had a binding agreement. According to the facts found each signed a counterpart and delivered it to the other intending that a bargain should result from that process. The legal effect of that ceremony in marking the consummation of the bargain is not in my view frustrated by the unintended circumstance that one copy had not been filled in. So to hold in my respectful opinion is to impute to the parties an artificial intention based upon a different negotiating context and at variance with the actual bargaining situation which upon the evidence existed between them."
55 There had been no mention in the Court of Appeal of rectification as a topic in any way relevant to the case. In the High Court, Mason J, in the course of argument, enquired of counsel for the vendor whether the incomplete document could have been rectified (662). Counsel's response was that that it could not, because "rectification cannot create a contract". That submission was dealt with in the joint judgment as follows, at 667:
"The appellant submits that, if it be an essential characteristic of exchange that the two parts should be in identical terms, rectification can be no answer to the existence of a material discrepancy. This is because exchange is the event which brings into existence a binding contract - without exchange there is no contract and hence no basis on which to found a rectification. Rectification is a remedy which cures erroneous expression of the parties' true intention in a contract which is already binding. It is not a remedy which brings a contract into existence in a situation in which the parties have not by their own acts arrived at a concluded contract."
56 As I read that paragraph, the whole of it is a statement of the submission of vendor's counsel, and no part is an expression of the Court's own views. It was in response to the problem created by that submission that their Honours went on to say, at 667-668:
"An unqualified acceptance of the proposition that delivery of two parts in identical terms is crucial to an effective exchange would exclude the parties' intention as the governing or, even as a relevant, factor. The question whether the delivery of parts in identical terms is essential must ultimately depend on the parties' intention. The answer to this question determines the manner in which the contract becomes binding. And as Lord Greene MR emphasized in Eccles v Bryant , the manner in which the contract is to be created so as to become binding is to be gathered from their intention, express or implied. In ascertaining their intention, we must take account of those factors which favour an insistence on documents in such a form as will evidence with certainty a contract and the terms of that contract, factors expressed and underlined by Lord Greene MR in Eccles v Bryant and by Lord Denning MR in Harrison v Battye . We must also take account of the real intention of the parties, giving due weight to their objective - the making of a binding contract by means of the exchange of parts. And if the parties, through negotiations between their solicitors, have agreed on the terms of their bargain and settle on an exchange of parts in order to seal that bargain, it would usually accord with their intention to treat the exchange as creating a binding contract, notwithstanding the lack of correspondence in the parts, so long as that lack of correspondence is capable of being remedied by rectification. It will be otherwise when it appears that the parties intend to be bound only by an exchange of parts in identical terms or when the prior negotiations do not completely settle the terms of the bargain and the parties look to the parts as exchanged to fix these terms.
This approach places less emphasis on the advantage of bringing into existence a document which establishes with certainty the terms of the contract and more emphasis on the intention of the parties in creating a contract by the ceremony of exchange, the terms of the bargain having already been determined. In such a case the importance of exchange lies not so much in the circumstance that it fixes the terms of the contract as in its function in fixing the existence of a binding contract, thereby terminating the period in which each party is free to withdraw from the negotiations. This concept of exchange enables the courts to do greater justice between the parties by precluding one party from acting on the footing that there is no binding contract when, as a result of an undetected error one part of the contract does not correspond with the other. On this view of exchange the availability of rectification is not a problem."
57 Mr Sneddon has submitted that establishing the existence of the contract in the present case would require the District Court to exercise a jurisdiction in rectification that it did not have. The correctness of that submission depends upon the force of the remark in a passage just quoted "so long as that lack of correspondence is capable of being remedied by rectification".
58 The remark appears in a sentence where their Honours are stating what "would usually" happen, concerning a matter of fact. Thus, it is an empirical generalisation, not a proposition of law. The circumstance in which lack of correspondence between the counterparts making up a contract was capable of being remedied by rectification is when there is a common intention as to what the contract shall be, of sufficient specificity to be formulated in the words of an order that identifies with precision what the counterparts should say to give effect to that common intention. As I read their Honours, what they are saying is that, in that circumstance, if the parties have agreed on the terms of their bargain, and that they will exchange counterparts to mark the entering of the contract, the exchange of counterparts would usually show that they intended thereby to enter a contract. In that situation, the law should treat the exchange as giving rise to a contract, even if the counterparts were not identical. That is not saying that any document must be rectified before the contract can be proved.
59 That is shown by the way that their Honours then went on to analyse the fact of the particular case before them, at 668:
"In the present case the foundation for saying that the delivery of identical parts was essential is more fragile than in the usual case of exchange between solicitors. Here, exchange took place between the solicitors for the vendor and the first respondent at a time when no solicitor was acting for the purchaser and the evidence is that both the solicitor and the first respondent understood that by their exchange of parts they had entered into a binding contract. The conveyancing basis for imputing to two solicitors an intention that an exchange does not create a contract unless the parts are identical has less force in the case where one of the parties is not represented by a solicitor, more particularly when it appears that both Mr Vaughan and the first respondent signed a counterpart and delivered it with the intention of bringing about a binding contract. … The point is that Mr Vaughan and the first respondent, having agreed on the terms, intended by that exchange to reach a concluded contract. To treat the discrepancies between the two parts as producing a different result is to impute to the parties an intention that they did not have. It is not a case, as in Harrison v Battye , where the two parts contradict each other. The lack of correspondence between them arises because of a failure to complete the counterpart signed by the appellant and to annex thereto a copy of the survey report. There is nothing in either part to raise any doubt as to the agreed terms. The appellant's counterpart, that signed by the first respondent, contained all the terms agreed upon. It was the copy that deleted cl. 17(d)."
60 This analysis of the facts of Sindel makes no mention at all of the availability of rectification in the particular case that the High Court was then considering. It could not seriously be supposed that, if the availability of rectification were a necessary part of the contract having been entered, the High Court would simply assume that rectification was available, without analysing the facts to demonstrate that they met the legal requirements for rectification being available.
61 The difficulties in the way of regarding the High Court as having seen rectification as necessary before there could be found to be a contract in the case they were considering is all the greater when rectification had not been an issue in the courts below and thus, one would infer, had not been raised on the pleadings. The High Court's judgment in Sindel was delivered less than two years after a unanimous judgment of five judges of the High Court in Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 had said, at 664:
"Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings."
62 The five judges who sat in Dare were the same as the five who sat in Sindel, save only in that Mason J sat in Sindel while Deane J had sat in Dare.
63 The difficulties are even greater when one recalls that whether rectification of a contract is available in the particular situation depends not only on whether the parties entered that contract with a particular common intention, but also upon whether any equitable defences are available that would cause a court not to grant the remedy. It could not seriously be thought that the High Court would simply assume that no such defences were available, when the topic had not even been litigated. Indeed, not even the question of whether there had been the type of common intention that is necessary for rectification of a contract had been litigated - even though both the law concerning contract formation, and the law concerning rectification, use the terminology "common intention", the meaning of that terminology in the two different realms of discourse is different: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) Aust Contract R 90-254 (special leave to appeal refused 16 November 2007) at [262] ff.
64 I conclude that the High Court did not decide in Sindel that availability of rectification was a pre-requisite before a contract for sale of land could be found to have been entered in a situation where counterparts that differ in a material respect have been exchanged. Thus unavailability of rectification in the District Court concerning a contract for sale of land for more than $20,000 does not pose an obstacle to that court having found that a contract had been entered in the present case.
65 In the High Court, some differences between the counterparts that had been exchanged, that had been referred to only in passing in the Court of Appeal, were noticed. The High Court observed that as well,
· no copy of the survey report referred to in one of the special conditions to the contract was annexed to the copy signed by the vendor;
· the certificate under s 342AS Local Government Act 1919 was annexed only to the copy signed by the vendor;
· Clause 17 (d) of the standard form of contract was struck out in the copy signed by the purchaser, but not in the copy signed by the vendor. It was a clause conferring the right of rescission in the event that the property is adversely affected by any mains or pipes of a water, drainage or sewerage authority in any matter other than as disclosed in the Fourth Schedule to the contract.
66 In the passage I have quoted at [59] above, these differences were regarded by the majority in the High Court as not preventing the formation of a binding contract.
67 The statement in that passage that the two parts did not "contradict" each other is at first sight puzzling. It could hardly be doubted that in Sindel the difference in counterparts concerning the right of rescission was a material difference. In the sense that one counterpart said there was a right of rescission, and the other did not, the counterparts did "contradict "each other.
68 But what their Honours were saying was that there was not the type of contradiction exemplified in Harrison v Battye. An important part of the facts in Harrison v Battye was that there was no agreement (whether in principle or otherwise) between the parties to contract on the terms of one of the counterparts - it was contemplated that there would be an exchange of counterparts, yet the counterparts executed by the parties differed. There had been an agreement in principle between the parties' solicitors about what alteration should be made to the executed counterparts, but there was no proof of the authority of one of the solicitors to make an agreement to give effect to that alternation. (As well, in Harrison there was not even an exchange - the purchaser's solicitor had sent to the vendor's solicitor an executed counterpart containing the alteration agreed between the solicitors, and by mistake the vendor's solicitor posted that same counterpart back, so the purchaser never received any document executed by the vendor.) Thus the only way of identifying the terms that the parties had agreed on was by comparing the counterparts. By comparison, in Sindel there was an agreement to contract on the terms of the counterpart executed by the purchaser, and a subsequent exchange. It seems to me that the sense in which there was no "contradiction" between the two parts in Sindel was that identity of the terms of the counterparts was not the way in which the terms of the agreement were to be identified.
69 In the present case, the contract in question can be proved without any order for rectification being made. It is proved by
· evidence of the conversations and letters that contemplated that exchange would be the means by which the contract would be entered.
· evidence of the conversations in which the consensus was arrived at that the contract would be entered on the terms of the counterpart signed by the Appellant.
· tender of the counterpart signed by the Appellant to identify the precise terms of the contract.
· proof that the Vendors' solicitor had the authority I have held at para [25] above that she had.
· proof that exchange actually occurred.
70 When all those matters were proved, the trial judge was right in finding that a contract had been entered.
71 Section 54A Conveyancing Act prevents an action or proceeding from being brought upon any contract for the sale of land
"… unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged."
72 In the present case, the "party to be charged" was the Appellant and the Third Respondent. The counterpart that they had signed contained all the terms that had been agreed upon and in that sense there was a contract in writing, signed by the party to be charged. The present case differs from the usual case of a contract in writing contained in a single document signed by all parties, or a contract formed by exchange of identical counterparts, because to prove that the counterpart signed by the Appellant and the Third Respondent is indeed a contract in writing one needs to prove other matters, beyond the counterpart itself and the signatures to it. Whether that means that for the purposes of section 54A it is properly to be regarded as an agreement in writing, or a memorandum or note of the agreement that is in writing, is in my view immaterial - it is clearly one or the other, and section 54A does not present any obstacle to the enforceability of the agreement. If the trial judge had considered the application of section 54A to the facts of the present case, he should have come to the same conclusion.
Issue 2 - Validity of the Notice to Complete
73 The trial judge's reasons said:
"The solicitors for the plaintiffs issued a Notice to Complete on 31 January requiring completion on or before 17 February. The defendants did not comply with the Notice to Complete and a Notice of Termination of Contract was served on the defendants on 21 February 2005. I find that on that day the contract was terminated."
74 The rambling and rather confused submissions that the Appellant made to the trial judge said nothing about the termination being invalid because no valid Notice to Complete had been served. However, issues for trial were formulated by the interaction of the Statement of Claim and the defence. There was no admission on the pleadings that a valid and effective Notice to Complete had been served, or that the purported termination of the contract was legally efficacious. Proof of those matters was essential for the Vendor-Respondents to make out all elements of their cause of action for damages. They bore the onus of proving them. The trial judge's reasons appear to assume, without examination, that the Notice to Complete was valid.
75 Even if the point has not been taken below, it is open to a person who has been a defendant in the court below to submit on appeal that the evidence did not make out an essential element of the cause of action sued on: Ashrafi Persian Trading Co Limited t/as Roslyn Gardens Motor Inn v Ashrafinia [2001] NSWCA 243; (2002) Aust Torts Reports 81-636; Jovic v Lamont [2007] NSWCA 47 at [67]-[72]. Thus I turn to consider whether the evidence establishes that the contract had been validly terminated by the process started by service of the Notice to Complete.