Regular readers will recall that I recently posted about whether an
agreement to lease can be formed by email (as examined in Vantage Systems Pty
Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21)?
In reality, that case did nothing more than apply the existing law.
In Masters V Cameron (1954) 91
CLR 353, the High Court pointed out (at paragraph 9) 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 cases. It may be one in which the
parties have reached finality in arranging all the terms of their bargain and
intend to be immediately bound to the performance of those terms, but at the
same time propose to have the terms restated in a form which will be fuller or
more precise but not different in effect. Or, secondly, it may be a case in
which the parties have completely agreed upon all the terms of their bargain
and intend no departure from or addition to that which their agreed terms
express or imply, but nevertheless have made performance of one or more of the
terms conditional upon the execution of a formal document. Or, thirdly, the
case may be 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. (at
p360)
The High Court concluded that in each of the first two cases there is a
binding contract:
… in the first
case a contract binding the parties at once to perform the agreed terms whether
the contemplated formal document comes into existence or not, and to join (if
they have so agreed) in settling and executing the formal document; and in the
second case a contract binding the parties to join in bringing the formal
contract into existence and then to carry it into execution.
In Stellard Pty Ltd & Anor v
North Queensland Fuel Pty Ltd [2015] QSC 119, Justice Martin of the Supreme
Court of Queensland was recently called on to determine whether a contract to
purchase real estate can be formed by email?
The judgment was delivered on 15 May 2015.
The purchasers claimed that a contract for the sale of a freehold
property and business was constituted by an email exchange between them and North
Queensland Fuel Pty Ltd (NQF). NQF
denied the claim, and argued that there was no intention to be legally bound by
that exchange and, in any event, there was no sufficient written memorandum or
note to satisfy s 59 of the Property Law Act 1974 (“PLA”).
Background Facts
NQF owned the Koah Roadhouse in far-north Queensland. NQF appointed an
agent to sell the freehold and the business; in October 2014 the roadhouse was
listed for sale.
On the 17th of October 2014, the plaintiff’s representative, Mr
Hurry, attended the roadhouse for an inspection of the premises with NQF and the
agent. During that inspection Mr Hurry said words to the following effect:
(a)
He represented United Petroleum and its
associated entities;
(b)
He was interested in the roadhouse;
(c)
Any contract would be conditional on “due
diligence”;
(d)
The contract would contain conditions relating
to an environmental site assessment and a “tanks and lines” integrity test; and
(e)
He would need to see the “financials” for the
business for the last two completed financial years.
During the inspection the agent provided a number of documents and
financial records to Mr Hurry. In emails of 28 October 2014 the agent provided
further records of the roadhouse “to assist with due diligence” including a
profit and loss statement.
On 30 October 2014 there were telephone discussions between the agent and
Mr Hurry. In those discussions Mr Hurry said that United Petroleum’s associated
entities (the First and Second Plaintiffs) would be the buyers with separate
contracts for the freehold and the business. Mr Beattie responded that NQF
wanted a single contract. Mr Hurry said that he wanted to know the vendor’s
terms so that he could get authority to make a formal offer.
On 30 October 2014, the agent sent an email to Mr Hurry stating that the
vendors would sign a single contract (with a number of terms outlined). A draft
contract of sale was attached to the email containing a special condition
relating to a personal guarantee to be given by the directors of the purchaser.
On 31 October 2014 the agent and Mr Hurry had further telephone
discussions. In those discussions Mr Hurry said that:
(a)
Although the first plaintiff would buy the
subject land and the second plaintiff would buy the business, they agreed to the
use of a single contract; and
(b)
The contract would be generally on the terms of
the agent’s email of 30 October 2014, with due diligence including:
environmental investigations, tank and line testing, and the outstanding
“financials”.
The agent asked that this offer be put in writing.
At 4.24pm on 31 October 2014 Mr Hurry sent an email (“the offer email”)
to the agent as follows:
Jay, further to
our various discussions, I can confirm our offer of $1,600,000 for the business
and freehold of the above property. As advised the freeholds are purchased by
an entity related to the two Directors/Owners of United Petroleum, which in
this case will be Stellard Pty Ltd.
This offer is of
course subject to contract and due diligence as previously discussed. We are
hopeful of effecting an exchange of contracts next Monday but need acceptance
of our offer immediately so we are in a position to instruct the appropriate
consultants to carry out the necessary investigations.
I look forward
receiving your client’s confirmation that our offer is accepted as clearly both
parties are now going to start incurring significant expenses.
Approximately 45 minutes later, the vendor sent an email (“the acceptance
email”) to the agent and Mr Hurry in response to the offer email. It was copied
to a solicitor, and other officers of the vendor. It contained the following:
Hi Jay and Martin,
We accept the
below offer which we understand will be subject to execution of the Contract
provided (with agreed amendments) on Monday, minimal due diligence period and
the provision of all information/reports etc that are obtained by the purchaser
during the due diligence period.
We look forward to
progressing the matter further on Monday.
A few days later the vendor purported to pull out of the negotiations; it
had apparently been dealing with another potential purchaser at the same time
who made a better offer, and the vendor wished to deal with that purchaser
instead.
Court’s analysis of the law
In the offer email these words are used: “This offer is of course subject
to contract and due diligence as previously discussed.”
In the acceptance email the defendant says “We accept the below offer
which we understand will be subject to execution of the Contract provided (with
agreed amendments) on Monday ...” (emphasis added).
The court concluded (at paragraph 39):
The broader
context of the two emails and the other expressions used in them strongly
suggests that the parties “were content to be bound immediately and exclusively
by the terms which they had agreed upon whilst expecting to make a further
contract in substitution for the first contract, containing, by consent,
additional terms.
And at paragraph 41:
The words used by the plaintiffs as to the
effect of acceptance is clear from the closing words of the email:
“I look forward
receiving your client’s confirmation that our offer is accepted as clearly both
parties are now going to start incurring significant expenses.”
In concluding what had been agreed (at paragraph 53) the court noted that
the parties had agreed:
(a) What was to be sold;
(b) The purchase price;
(c) The deposit;
(d) When stock was to be valued;
(e) When the testing of tanks and lines
was to occur;
(f) The term of the due diligence
period;
(g) When settlement was to take place;
and
(h) Where it was to take place.
In the circumstances, the court held that there was a contract for the
sale of the Koah Roadhouse.
The vendor argued that, if a contract was found to exist, then there is
no sufficient writing to satisfy s 59 of the PLA (which is in similar terms to
section 126 of the Instruments Act,
1958 (Vic).
Section 59 provides:
No action may be
brought upon any contract for the sale or other disposition of land or any
interest in land unless the contract upon which such action is brought, or some
memorandum or note of the contract, is in writing, and signed by the party to
be charged, or by some person by the party lawfully authorised.
The vendor’s argument was directed to the operation of the Electronic
Transactions (Queensland) Act 2001 (“ETQ Act”).
Section 14 of the ETQ Act provides:
(1) If, under a State law, a person’s
signature is required, the requirement is taken to have been met for an
electronic communication if—
(a) a method is
used to identify the person and to indicate the person’s intention in relation
to the information communicated; and
(b) the method
used was either—
(i) as reliable as
appropriate for the purposes for which the electronic communication was
generated or communicated, having regard to all the circumstances, including
any relevant agreement; or
(ii) proven in
fact to have fulfilled the functions described in paragraph (a), by itself or
together with further evidence; and
(c) the person to
whom the signature is required to be given consents to the requirement being
met by using the method mentioned in paragraph (a).
(2) The reference
in subsection (1) to a law that requires a signature includes a reference to a
law that provides consequences for the absence of a signature.”
The vendor put a very technical argument that the purchaser and it had
not complied explicitly with the requirements of that Act, as therefore there
could be no acceptance by email.
The court dismissed this argument and held:
In circumstances
where parties have engaged in negotiation by email and, in particular, where an
offer is made by email, then it is open to the court to infer that consent has
been given by conduct of the other party.
This case confirms that:
(a)
When conducting negotiations, it is extremely important to be very
clear about whether you intend to be bound by the result of the ongoing
negotiations between the parties; and
(b)
The courts are (slowly) catching up with the reality of the way in
which modern business transactions are being conducted in the real world.
In these modern times, it is not unusual for
most, if not all communications in business to be conducted by email. This case
confirms that such a transaction can be legally binding.
In my opinion, it will not be long before we
have a case about an agreement for the lease or purchase of real estate that
has been concluded by text message.
W G Stark
Hayden Starke Chambers
With assistance from Wilcox & Associates and
Ross Eason
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