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Supreme Court judgments

Supreme Court judgments

By Professor Greg Reinhardt

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Offer subject to contract being executed

The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91 (unreported, 24 April 2019, No S APCI 2018 0091, Kaye, McLeish and Hargrave JJA). This application for leave to appeal concerned a letter signed by the parties headed “Offer to Purchase” in respect of land in Cheltenham. The letter on the letterhead of the vendor’s real estate agent set out the proposed terms and conditions for the sale and purchase of the property, including a provision that a deposit of 20 per cent be paid on execution of contracts of sale with 1 per cent payable on the signing of the Offer to Purchase. It was stated that the offer “is subject to the contract being executed”. There was no vendor’s statement provided as required by s32 of the Sale of Land Act 1962 (Vic).

The vendor received a later offer which was better than the offer the subject of the letter and invited the purchaser to meet or better that offer. The purchaser, the applicant, lodged a caveat as purchaser. The respondent brought proceedings for the removal of the caveat. The purchaser then brought proceedings for specific performance.

Did the signed letter give rise to a binding contract for the sale and purchase of the land?

The Court made substantial reference to the decision of the High Court in Masters v Cameron (1954) 91 CLR 353. Their Honours referred to the third type of case identified at p360 of the judgment of the High Court by Dixon CJ, McTiernan and Kitto JJ, namely one in which “the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract”. In that judgment, the Court explained that this case was “fundamentally different”.

“. . . They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c of the Poor of Kingston-upon-Hull v Petch. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. These possibilities were both referred to in Rossiter v Miller. Lord O’Hagan said: ‘Undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an agreement embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made’. And Lord Blackburn said: ‘parties often do enter into a negotiation meaning that, when they have (or think they have) come to one mind, the result shall be put into formal shape, and then (if on seeing the result in that shape they find they are agreed) signed and made binding; but that each party is to reserve to himself the right to retire from the contract, if, on looking at the formal contract, he finds that though it may represent what he said, it does not represent what he meant to say. Whenever, on the true construction of the evidence, this appears to be the intention, I think that the parties ought not to be held bound till they have executed the formal agreement’. So, as Parker J said in Von Hatzfeldt-Wildenburg v Alexander in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract” (91 CLR 361-2) at [20] (endnotes omitted).

The use of the words “subject to contract” has been recognised throughout the cases as creating “an overriding condition so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract” (91 CLR 362-3) at [21].

The primary judge had held that the signed letter fell into the High Court’s third category. He had noted that, apart from the words used, the deposit was not payable until after execution of the formal contract of sale. The absence of a s32 statement was also an indication that there was no binding contract. There was no evidence as to the basis on which the purchaser had been given keys to and access to the property.

On appeal, the applicant purchaser sought to argue that the use of the words “subject to contract” in the letter of offer was consistent in the circumstances with the creation of a legally binding contract immediately.

The Court of Appeal referred to the decision of the Court in Molonglo Group (Aust) Pty Ltd v Cahill [2018] VSCA 147 and said at [45]-[47]: “. . . First, the meaning of contractual terms is to be ascertained objectively having regard to the language of the contract and, where appropriate, the surrounding circumstances known to the parties. In Electricity Generation Corporation v Woodside Energy Ltd, French CJ, Hayne, Crennan and Kiefel JJ said:

[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’.

“Likewise, where the issue is not the meaning of a term but whether the parties intended that the document in which it appears should be a binding contract, the issue is ‘to be determined, objectively, from the text of the document, construed in the context of the circumstances in which it came into being’. Again, it is relevant to take into account the commercial context and surrounding circumstances of the parties’ dealings. The parties’ pre-contractual conduct is relevant and admissible on the issue of what each party by their words and conduct would have led a reasonable person in the position of the other party to believe.

“Finally, post-contractual conduct can also be admissible on the issue of whether the parties intended a document to be a binding contract, but only in limited circumstances, such as where the conduct constitutes an admission against interest. Otherwise, the general position is that post-contractual conduct is not admissible for the purpose of construing a contract. The Court in Nurisvan explained that it may be relevant to examine correspondence and communications between the parties, including subsequent to the document in question, to place that document in the context of the negotiations and determine whether the parties intended it to constitute the terms of a binding agreement. Alternatively, even where there was no chain of correspondence providing context to the creation of the relevant document, subsequent negotiations and communications between the parties may be relevant to demonstrate the nature and extent of the terms that might be necessary for the conclusion of a binding agreement but which were not included in the document in question” (endnotes omitted).

Applying these principles the Court of Appeal said at [61]-[62]: “Taken together, these considerations lead to the conclusion that the parties did not intend the letter of offer to constitute a contract of sale, to be the subject of a later document but binding the parties in the meantime. Instead, the execution of a contract of sale was intended to mark the point at which the transaction became legally binding. That conclusion is unaffected by reading the letter of offer along with the confidentiality deed poll, to which the letter refers and which was signed at more or less the same time. As already mentioned, the confidentiality arrangement was consistent with the parties remaining in a state of negotiation, and its cessation upon execution of the contract of sale is one indication that the parties were thereafter bound by what they had agreed. The Edge’s submission in this Court that the terms of the confidentiality deed poll provided differently as to its cessation should be rejected. Clause 10 provided that the terms expired on the later of the parties’ agreement to that effect and the date of the confidential information entering the public domain. But there was nothing to stop the parties agreeing, as they did in the letter of offer, that the agreement would cease without the latter condition being specified. The handwritten amendment to that effect was plainly intended to have overriding operation.

“Nothing in the post-signature conduct of the parties leads to any different result. The provision of keys and access to the office and warehouse before a formal contract had been executed was not explained in the evidence. The evidence therefore does not enable these matters to be treated as admissions on the part of Jack Road as to the legal effect or operation of the letter of offer. No other basis for having regard to those matters was suggested. Equally, the evidence does not allow the Court to evaluate The Edge’s argument that provision of the keys and access amounted to a waiver of the terms of condition 4. Even if that argument had been pleaded and argued at trial, there was no evidentiary basis for its acceptance.”

Leave to appeal was refused. 

 

Professor Greg Reinhardt is executive director of the Australasian Institute of Judicial Administration and a member of the Faculty of Law at Monash University, ph 9600 1311, email Gregory.Reinhardt@monash.edu. The numbers in square brackets in the text refer to the paragraph numbers in the judgment. The full version of this judgment can be found at www.austlii.edu.au.


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