CATCHWORDS CONTRACT - whether contract of sale - "dutch" auction - competing bids ~ whether contract formed on execution of contract and payment of deposit by highest bidder, or not until exchange of contracts -— objective test of intention of parties - whether contract enforceable - whether memorandum or note - solicitor's letter enclosing contract for signature - whether solicitor had authority to bind vendor. Bankruptcy Act 1966 ss.30(1), 134(4). Conveyancing Act 1919 (NSW) s.54A. Eccles v. Bryant and Pollock [1948] 1 Ch. 93, Summergreene v. Parker (1950) 80 C.L.R. 304, Allen v. Carbone (1975) 132 C.L.R. 528, Hooker Industrial Developments Pty Ltd v. Trustees of the Christian Brothers [1977] 2 N.S.W.L.R. 109, Smith v. Lush (1952) 52 S.R. (N.S.W.) 207, Summit Properties Pty Ltd v. Comserv (No. 784) Pty Ltd (1981) 2 B.P.R. 9173, B. Seppelt & Sons Ltd v. Commissioner for Main Roads (1975) 1 B.P.R. 9147. Smith v. Webster (1876) 3 Ch. D.49, Daniels v. Trefusis [1914] 1 Ch. 788, North v. Loomes [1919] 1 Ch. 378, Woden Squash Courts Pty Ltd v. Zero Builders Pty Ltd [1976] 2 N.S.W.L.R. 212. RE: TERRENCE BYRNE and JEAN OLIVIA BYRNE; EX PARTE: NORCO CO-OPERATIVE LIMITED. EDWARD MICHAEL RING v. MICHAEL DAVID FOLEY & MALAESTATES PTY LTD No. W167 of 1985 Jackson J. Sydney 11 September 1986 IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF _- NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: EX PARTE: BETWEEN : CORAM: JACKSON J. DATE: 11 September 1986 PLACE: SYDNEY ee OW ww ww No. W167 of 1985 TERRENCE BYRNE and JEAN OLIVIA BYRNE Bankrupts NORCO CO-OPERATIVE LIMITED Creditor EDWARD MICHAEL RING Applicant MICHAEL DAVID FOLEY and KIM EDWARDS First Respondent MALAESTATES PTY. LTD. Second Respondent MINUTES OF ORDER THE COURT ORDERS THAT: 1. It be declared that Malaestates Pty Ltd does not have any interest, whether legal or equitable, in the property comprised in Certificates of Title Volume 12513 Folio 126 . and Volume 10605 Folio 145 by reason of events on or prior to 19th April 1986. 2. It be declared that Michael David Foley and Kim Edwards : have an equitable interest in the said property as purchasers under an agreement for sale made on 19th April 1986 the terms of which are set out in Exhibit 1 in these proceedings. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: EX PARTE: BETWEEN : AND: CORAM : JACKSON J. DATE: 11 September 1986 PLACE: SYDNEY No. W167 of 1985 TERRENCE BYRNE and JEAN OLIVIA BYRNE Bankrupts NORCO CO-OPERATIVE LIMITED Creditor EDWARD MICHAEL RING Applicant MICHAEL DAVID FOLEY and KIM EDWARDS First Respondent MALAESTATES PTY. LTD. Second Respondent REASONS FOR JUDGMENT JACKSON J. Terrence Byrne and Jean Olivia Byrne were made bankrupt on 26th February 1985. The applicant, Edward Michael Ring, a chartered accountant practising at Murwillumbah, is their trustee in bankruptcy. The assets of the bankrupts included a freehold property at North Arm in the Macksville region of New South Wales and the issues which arise Lor determination in these proceedings, in which the Court is invited to exercise the jurisdiction conferred by ss.30(1) and 134(4) of the Bankruptcy Act 1966, relate to that property. The fundamental questions which arise in this regard are whether events which occurred on 19th April 1986 gave rise to a contract by the applicant to sell the property to Michael David Foley and Kim Edwards for a price of $151,000.00 and, if so, whether the contract is enforceable in the light of s.54A of the Conveyancing Act 1919. Before I turn to the resolution of those questions, however, it is necessary to set out some of the events which preceded those which occurred on 19th April and I shall state now my findings as to those events. Mr Foley is a Sydney solicitor who has a property in the Macksville area. Mr Edwards is a Sydney surgeon. In January and February 1986 Mr Foley had made enquiries with a view to a possible purchase of the property from the applicant and had made an offer to Mr Ring to purchase it for a price which was not acceptable to a meeting of creditors held on 17th February 1986. In the result Mr Ring put the property to public auction, and the auction was conducted on 5th April 1986. At the auction the property was passed in. The only bidder was Mr Foley (then acting on behalf of himself and Mrs Edwards) and his bid was $100,000.00. I should add that from 15th April onwards Mrs Edwards was no longer involved and Mr Foley was acting on behalf of himself and Mr Edwards. After the date of the auction Mr Foley had some telephone conversations with Mr Ring and increased his offer to $110,000.00. Again this was not acceptable. In addition to Mr Foley, however, other persons became interested in the property. In particular Leigh Francis Ratcliffe, a Melbourne architect acting on behalf of a company Malaestates Pty Ltd, was in Macksville on 18th April and made an offer of $120,000.00 for the property to G.J. Kennedy & Co. Pty Limited, the real estate agent acting on behalf of the applicant. Mr Beaney, a director of G.J. Kennedy & Co. Pty Limited, was the person handling the matter at all material times and Mr Beaney communicated by telephone Mr Ratcliffe's offer to Mr Ring, who was minded to accept it. Mr Beaney then took Mr Ratcliffe and the persons accompanying him to the office of Messrs Hughes, Perkins & Co., the solicitors retained to act on behalf of the applicant, in order for them to see Mr Locke, a senior associate solicitor of that firm, to discuss the form of contract. Mr Locke was not immediately available and Mr Beaney returned to his own office leaving Mr Ratcliffe and his companions waiting at the solicitors' office. Shortly after Mr Beaney's return to his office Mr Foley, who had been in the area for the purpose of a court case at Coffs Harbour, called in to see him. Mr Beaney told Mr Foley ~c the offer by Mr Ratcliffe's interests and in the event Mr Foley made an offer of $125,000.00 for the property. Mr Beaney telephoned Mr Locke and told him of this fact. Mr Ratcliffe and his companions then returned to Mr Beaney's office, and, on being told of Mr Foley's offer, Mr Ratcliffe complained to Mr Beaney that he "had been gazumped". Mr Beaney, together with Mr Ratcliffe and, it seems, a Mr Owner, then went to the office of Hughes, Perkins & Co., and went in to see Mr Locke in his office. In the presence of those persons Mr Beaney telephoned Mr Ring and discussed with him the course that should be followed in relation to the offers. In relation to the terms of that conversation I am satisfied that Mr Ring, who was to be on holidays in Victoria from 19th April for a period of some weeks, made it clear to Mr Beaney that he wanted to have resolved as expeditiously as possible the competition between potential purchasers of the property and that he discussed at some length with Mr Beaney the procedure which might be adopted to arrive at that result. I am satisfied that in the course of the discussion he agreed > with Mr Beaney's proposal that the possible purchasers (who included other persons in addition to those represented by Messrs Ratcliffe and Foley) should be invited to make offers in competition with each other up to noon, or shortly after, the following day. I am also satisfied that in order to encourage the potential purchasers to participate, Mr Ring authorized Mr Beaney to tell them that the person who made the highest offer during the competitive bidding on the next day and who then forthwith paid a deposit of five per cent of the offered price and signed a contract to purchase the property would be the buyer. I am satisfied also that Mr Ring told Mr Beaney that he (Mr Ring) gave an undertaking to the potential offerors that he would enter into a contract with that person. After the conversation between Mr Ring and Mr Beaney concluded, Mr Ring spoke to Mr Locke and in that conversation Mr Ring told Mr Locke that whoever made the highest offer, paid the five per cent deposit and signed the contract would be the purchaser and that there would be no further negotiations. I am satisfied also that Mr Ring stated to both Mr Beaney and to Mr Locke that he would leave it to Mr Beaney to arrange details of the procedure which was to be carried out the 'next day and that Mr Ring told Mr Locke that his firm was to act on Mr Ring's behalf in the matter. After those conversations Mr Beaney spoke to Mr Foley and other persons who had expressed an interest in the property and informed them of the method of sale which he had discussed with Mr Ring. In particular, as I find, he told Mr Foley that the procedure to be adopted the next day was not to be construed as an "ordinary" auction sale because Mr Ring had not advertised the sale and was concerned about possible criticism for not having done so, and for that reason Mr Beaney was not to sign the contract on Mr Ring's behalf. On the next day at noon the interested persons were in Mr Beaney's office and the persons present included Mr Ratcliffe and Mr Foley. I am satisfied that Mr Beaney, as he said in evidence, made it plain to the persons assembled in his office - as Mr Ring had authorized him to do - that the person who made the highest offer and who signed the form of contract and who paid the five percent deposit "would be the successful buyer of the property". I am satisfied also that he told the persons present that Mr Ring had given an undertaking to that effect. Offers were then called for, and "bidding" proceeded. Mr Foley's offer of $151,000.00 was the highest. Mr Foley then signed a form of contract which was provided to him and paid the five per cent deposit. A copy of the contract signed by Mr Foley was sent to Mr Ring but Mr Ring has declined to sign the contract. He has subsequently invited tenders for the property and Malaestates Pty Ltd was the successful tenderer, subject to the resolution of the question whether Mr Foley and Mr Edwards have a prior enforceable contract to purchase the property. I turn then to consider the particular matters on which the Court's opinion is sought. They are set out in > paragraphs 2 to 7 of the Application as follows:- "2. A declaration as to whether Malaestates Pty Limited (hereinafter called "Malaestates") has a legal or equitable interest in the whole of the land comprised in Certificate of Title Volume 12513 Folio 126 and Volume 10605 Folio 145 (hereinafter called "the property") pursuant to or as an incident of dicussions that took place between Mr Ratcliffe, apparently an officer of Malaestates, Mr Locke the solicitor then acting for the Applicant, Mr Beaney, the real estate agent acting for the Applicant and the Applicant. 3. A declaration as to whether Michael Foley and Kim Edwards (hereinafter called "the claimants") or either one of them have a legal or equitable interest in the whole of the land comprised in Certificates of Title Volume 12513 Folio 126 and Volume 10605 Folio 145 (hereinafter called "the property") pursuant to or as an incident of an Agreement for Sale of Land (hereinafter called "the Agreement") signed by the said Michael Foley on his own behalf and on behalf of Kim Edwards delivered to Mr John Beaney the real estate agent of the applicant together with a deposit of $7,550.00 on Saturday 19th April, 1986. 4. If the answer to Paragraph 3 hereof is "yes", a declaration as to whether the claimants or either of them have such an interest as would, subject to Paragraph 5 hereof, entitle them to an order for specific performance against the Applicant to enter - into the Agreement. 5. If the answer to Paragraphs 3 or 4 or either of them is "yes" a declaration as to the date upon which the Agreement was entered into or whether the Agreement would be entered into on the date upon which it would be exchanged. 6. In the alternative to Paragraphs 2 to 4 hereof inclusive, a declaration as to whether the claimants or either of them have entered into a contract with the Applicant to enter into a contract containing the terms and conditions of the Agreement. 7. %£ the answer to any of the preceding Paragraphs is or would result in the Agreement or a contract containing the terms, conditions and warranties of the Agreement being entered into on or after lst May, 1968, declarations that it would be a hardship, in all the circumstances, to require the Applicant to specifically perform the Agreement or any such contract as varied by the warranties and other requirements imported into the contract by Section 52A of the New South Wales Conveyancing Act, 1919 as amended and the Conveyancing (Vendor Disclosure and Warranty) Regulation, 1986." ° Paragraph 2 of the Application relates to a suggestion raised at an earlier point that by events which occurred prior to 19th April Malaestates had entered into an agreement to purchase the property. Malaestates does not now contend that it acquired any interest in the land other than in consequence of acceptance of its tender at a later time and I shall simply declare that Malaestates does not have a legal or equitable interest in the property by reason of events on or prior to 19th April 1986. I turn then to paragraph 3 which gives rise to the fundamental questions in these proceedings, the first such question being whether the events of 19th April gave rise toa contract between Mr Ring as trustee on the one hand, and Messrs Foley and Edwards on the other. The competing contentions are, on behalf of Mr Foley and Mr Edwards, that a concluded agreement was arrived at upon the execution by Mr Foley on behalf of himself and Mr Edwards, of the form of the contract which he signed and on payment of the deposit and, on behalf of Mr Ring and Malaestates, that no contract was to be entered into until there had been an exchange of contracts, i.e. until Mr Ring had executed his copy of the agreement and sent that copy to the purchaser. In resolving the competing contentions it is convenient to refer first to three specific matters to which reference was made by counsel for Malaestates Pty Ltd as matters which should lead to the view that there was to be no contract until there was an exchange of contracts. The first such matter is that in New South Wales the common method of entering into contracts for sale of land is not by vendor and purchaser executing one document which is the contract of sale, but rather by the purchaser signing the copy (the "counterpart") of such a document, and the vendor the original, with the contract coming into existence when the copies are exchanged. In such a context and particularly (as was said to be the case here) where there is a reference to "exchange of contracts" in the negotiations, the following observations of Lord Greene M.R. in Eccles v. Bryant and 10. Pollock [1948] 1 Ch. 93 at 99 will apply:- "When parties are proposing to enter into a contract, the manner in which the contract is to be created so as to bind them must be gathered from the intentions of the parties express or implied. In such a contract as this, there is a well-known, common and customary method of dealing; namely, by exchange, and anyone who contemplates that method of dealing cannot contemplate the coming into existence of a binding contract before the exchange takes place." See too Summergreene v. Parker (1950) 80 C.L.R. 304 at 321, Allen v. Carbone (1975) 132 C.L.R. 528 at 533, Hooker Industrial Developments Pty Ltd v. Trustees of the Christian Brothers [1977] 2 N.S.W.LeR. 109 at 118, Smith v. Lush (1952) 52 S.R. (N.S.W.) 207, Summit Properties Pty Ltd v. Comserv (No. 784) Pty Ltd (1981) 2 B.P.R. 9173 and B. Seppelt & Sons Ltd v. Commissioner for Main Roads (1975) 1 B.P.R. 9147. It was said that the case was one to which the observations of Lord Greene M.R. were directly applicable because Mr Beaney had made it clear to all potential purchasers on 19th April that there would have to be an exchange of contracts, and that normal conveyancing procedures were to be followed. The evidence of Mr Foley was to the contrary, however, and on this issue I prefer Mr Foley's evidence that the topic of exchanging contracts or of following normal conveyancing procedures was not mentioned to him or discussed by him prior to his signing the form of contract and paying the deposit on 19th April. The second specific matter on which reliance was placed was 11. that Mr Beaney had told the persons present at his office on 19th April that the proceedings were not to be an "auction sale as such" and that Mr Beaney had "no power to sign the contract on behalf of" Mr Ring. It was urged that these statements showed that although Mr Ring had told Mr Beaney that he would contract with the highest bidder on the 19th who signed the contract and paid the deposit, he would not be bound until he himself had signed the contract. Although I think that the expressions of Mr Beaney to which I have referred , if taken in isolation, might lead to the view that there was not to be a contract until, at the earliest, execution of a copy of the contract by the vendor, I do not think that they should be so treated in the present context. I think that Mr Beaney was concerned to state that the proceedings were not an auction "as such" because he wanted to make it clear that the highest bidder would not become the purchaser "on the fall of the hammer" but only after signing the contract and paying the deposit and in order to protect Mr Ring from possible criticism for failure to advertise the sale. I think also that Mr Beaney in saying that he had not authority to sign the contract was indicating again that the procedure to be followed was not that of a normal public auction, when the auctioneer would ordinarily have authority to execute on behalf of the vendor a memorandum of the agreement arrived at with the highest bidder. In the circumstances I do not consider that Mr Beaney's statement on the 19th altered the position from that which he had communicated to Mr Foley on the previous evening. 12. The third matter is the fact that the form of contract actually executed by Mr Poley was altered slightly by him prior to execution. The contract had originally been prepared, as I find, by Hughes, Perkins & Co. on Mr Ring's instructions for the auction on 5th April and Mr Foley added to the description of the improvements the words "& cottage" following the existing words "Farm improvements". Mr Ring had left it to his solicitors to prepare a form of contract suitable to the occasion on the 19th and I do not think that their authority, or that of Mr Beaney, was limited to obtaining the signature of the highest offeror-to a contract which was in exactly the same form as that which they had prepared for the earlier unsuccessful auction. The ultimate question which remains, however, is whether, applying an objective test, it was the intention of the parties that a contract be made upon the execution of the contract and the payment of the five per cent deposit by the highest bidder on 19th April. In my view it was the intention of the parties that a contract would result at that time, and there are several features which lead me to that view. In the first place I am satisfied that Mr Beaney communicated accurately to potential bidders what he had been told by Mr Ring, and his conversation with Mr Ring took place in the presence of Mr Ratcliffe and Mr Owner. Those gentlemen raised 13. specifically the questions whether the deposit required would be five per cent rather than ten, and also "that if they happened to have been the successful, or the highest offer made, that the contract would go to them. They wanted to make sure that there would not be any further gazumping as they put it." It seems unlikely that they would readily have assented, without objection, to a procedure which would result in Mr Ring having the opportunity, after 19th April, to receive other bids against them or to seek to get them to increase their bids further. That view is supported by the fact that after it became apparent on 19th April that Mr Foley's offer was the highest, Mr Ratcliffe said that his party would not leave until they had seen Mr Foley "sign the contract and pay the money". As I have said above, however, the question is ultimately one of determining what was the intention of the parties. The circumstances were admittedly not the norm and all parties wanted to bring the matter to a conclusion. I am satisfied that, in order to seek to get the highest price for the property Mr Ring instructed Mr Beaney to inform potential purchasers, and Mr Beaney did so inform potential purchasers, that he would contract with the highest "bidder" on the 19th April who paid the deposit and signed the contract. I am satisfied that Mr Ring intended to bind himself contractually on the happening of the last of those events, and that that intention was communicated to and understood by Mr Ratcliffe and Mr Foley prior to the commencement of bidding on the day. It seems to me that the fact that it was contemplated that Mr Ring 14. would sign a copy of the contract does not mean that the undertaking which he-gave was to be treated as illusory, or binding in honour only. As a matter of practicality a purchaser would want a copy of the contract signed by the vendor. The question which then arises is whether the contract is enforceable, reliance being placed on s.54A(1) of the Conveyancing Act 1919 which provides that:- "(1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in 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 by him lawfully authorized." The contract, of course, has not been signed by Mr Ring and the only document which might constitute a "memorandum or note" in terms of s.54A(1) is Exhibit 1, a letter dated 22nd April 1986 from Hughes, Perkins & Co. to Mr Ring addressed to him at his daughter's home in Victoria where he was on holidays. The letter encloses the original contract and says:- "RE: BYRNE - BANKRUPTCY AND SALE TO FOLEY & EDWARDS Enclosed plese (sic) find original contract herein for signature by you as vendor. We would be grateful if you would also sign at the bottom of the page of special conditions and return the contract to us at your earliest possible convenience." Assuming, as it is necessary to assume for these purposes, that a concluded agreement had been arrived at 15. before Exhibit 1 was sent, it is clear that the letter, when read with the contract for signature, sets out all the terms of the agreement. The argument, however, is that the solicitors had no authority to bind the applicant by any such memorandum, reliance being placed on Smith v. Webster (1876) 3 ch.D. 49. In that case it was held that a letter forwarding a draft contract where a matter was subject to negotiation, could not amount to a memorandum for the purposes of the statute. In the present case, however, an agreement was already arrived at and the solicitors had express authority to send the contract to Mr Ring. The case is thus one to which the principle in Daniels v. Trefusis [1914] 1 Ch. 788 is more appropriate. There Sargant J. said at 798-799:- "The second objection is more formidable and is supported at first sight by the well-known case of Smith v. Webster. But when that case is carefully examined, both on its own facts and in the light of the two subsequent cases of Jones v. Victoria Graving Dock Co. and John Griffiths Cycle Corporation v. Humber & Co. (a case which was reversed 1n the House of Lords on entirely different grounds), it becomes apparent that the present case is not within it. Smith v. Webster really decided that the authority of a solicitor to prepare a draft contract did not include, and indeed was inconsistent with, an authority to state, in a binding form and so as to constitute a contract, the rough heads of information which had been given by the client to the solicitor as material on which to draw the formal contract. But here the authority was not a general authority at all, but an authority to forward to the plaintiff's advisers certain particular documents. And although the defendant may not have been contemplating that those documents would form a note or memorandum of the contract sufficient to satisy the Statute of Frauds (indeed nothing could have been further from his thoughts), that did not in my judgment invalidate the authority to forward the documents, or prevent all those legal consequences flowing from the forwarding which would undoubtedly have flowed from 16. it had the defendant forwarded the statements himself and signed the letters enclosing them. It seems to me that the unintentional by-product of satisfying the Statute of Frauds may be produced as completely by a note or memorandum signed by an agent of the party as by a note or memorandum signed by the party himself, provided, of course, that the agent had authority to sign the particular note or memorandum. Mr Martelli indeed urged that Messrs Taylor & Co. had no authority to sign the letters enclosing the two statements, since they might have been sent without any accompanying letter or signature. But I do not think that this argument is sound in a case like the present, where the normal and usual method of communicating the two statements was adopted, namely, by means of the post and by enclosing them in letters referring to or indicating the enclosures. I am therefore of opinion that the letters and statements in question are sufficient to satisfy the statute." See too North v. Loomes [1919] 1 Ch. 378 at 383 and Woden Squash Courts Pty Ltd v. Zero Builders Pty Ltd [1976] 2 N.S.W.L.R. 212 at 220. I am thus satisfied that there is a memorandum or note satisfying s.54A(1) and it is unnecessary in the light of those views to deal with the other issues relating to s.54A which were raised before me. It follows that I should declare in relation to paragraph 3 of the application that Messrs Foley and Edwards have an equitable interest in the property pursuant to an agreement for sale entered into between them as purchasers and the applicant as trustee on 19th April 1986. It was not suggested that if I were to answer paragraph 3 in that way, there was any reason why Messrs Foley and Edwards were not 17. entitled to specific performance of the agreement, and it is not necessary to make any declaration in relation to paragraph 4. In relation to paragraph 5 it follows from the views I have taken earlier that the contract was entered into on 19th April 1986. It is unnecessary to answer paragraph 6 and it is agreed by the parties that it is unnecessary to answer paragraph 7 if I am of the view that a contract was entered into prior to lst May 1986. The orders which I shall make are as follows:- 1. I declare that Malaestates Pty Ltd does not have any interest, whether legal or equitable, in the property comprised in Certificates of Title Volume 12513 Folio 126 and Volume 10605 Folio 145 by reason of events on or prior to 19th April 1986. 2. I declare that Michael David Foley and Kim Edwards have an equitable interest in the said property as purchasers under an agreement for sale made on 19th April 1986 the terms of which are set out in Exhibit 1 in these proceedings. - I shall hear the parties as to the costs of the proceedings. 18. I certify that this and the 17 preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Jackson. Associate: DWharcterhirg . Date: 11 September 1986 Solicitor for the applicant: Mr P.M.Fordyce of Messrs P.A. Somerset & Co. Counsel for the first respondent: Mr R.M. Smith Solicitors for the first respondent: Foleys Counsel for the second respondent: Mr N.C. Hutley Solicitors for the second respondent: Martin & Martin, Melbourne Dates of hearing: 6, 7 August 1986