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Property: Subject to contract

Every Issue

Cite as: September 2015 89 (9) LIJ, p.76

Limitations will not necessarily prevent a court from being satisfied that a binding agreement has been entered into.

Tips
  • Negotiations expressed as being “subject to contract” will usually only be binding on the parties when a formal contract is in fact signed and exchanged.
  • “Subject to contract” limitations will not necessarily prevent a court from being satisfied that a binding agreement has been entered into if surrounding circumstances support such a finding.
  • The courts take an expansive view to the application of the Electronic Transactions Act in the context of contract formation.
  • While it is relatively simple to state legal principles, the application of those principles always depends on the specific facts of the case. That is why it is not possible for a lawyer to advise a client what the outcome of any particular dispute will be. The best that we can do is weigh up the competing arguments and take our best shot – 80/20, 60/40, 50/50. It is for the client to decide whether they want to roll the dice and we then spend our time hoping to get a result.

    One principle that is fairly well entrenched in the law relating to contracts for the sale of land is the need for the parties to have reached a concluded agreement and the unlikelihood of that requirement being satisfied if the negotiations between the parties include the expression “subject to contract” and no formal contract is ultimately entered into.

    Establishing the existence of a legally binding contract of sale is a serious matter for our courts and where one party to negotiations, let alone both parties, has included the phrase “subject to contract” in their offer or acceptance it is usually concluded that the parties had not, as at that point in time, reached the point where they intend to be legally bound to proceed with the transaction. Faced with those facts, a reasonably experienced property lawyer would probably predict an 80/20 outcome in favour of “no contract”.

    But no. The Queensland Supreme Court case of Stellard v North Queensland Fuel [2015] QSC 119 defied the odds and concluded that the negotiations had indeed been consummated, notwithstanding the words “[T]his offer is of course subject to contract” in the email containing the offer and the words “subject to execution of the contract provided” being used in the subsequent email acceptance. Significantly, after acceptance of the offer, the purchaser submitted another form of contract and indicated that the purchaser was anxious “to exchange this contract as soon as possible”. The betting went to 90/10 at that stage but the result still went the other way.

    It appeared significant that the vendor had another purchaser “on the line” and appeared to be playing one off against the other, but that hardly seems sufficient to overcome what appeared to be a fairly clear case of both parties consciously delaying final commitment until the formal signing and exchange of contracts.

    The case also considered the role of email communications in the exchange of contract environment. Victoria requires an enforceable contract to be signed by a party, or a person authorised in writing by the party (s126 Instruments Act) and the Queensland provision requires signing by a party or a person authorised by a party. Both states have adopted the Uniform Electronic Transactions Act.

    There was no contest that the negotiators were authorised to bind the respective parties, but the acceptance email made no reference to the representative character of the author. However the Court was satisfied that this requirement could be satisfied by reference to surrounding circumstances, including telephone conversations and the offer email. This approach is reflective of the fairly embracing attitude shown by courts to the adoption of the various Electronic Transactions Acts.

    Russell Cocks is author of 1001 Conveyancing Answers, and the Law Institute of Victoria Mentor of the Year 2015. For more information go to www.russellcocks.com.au.

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