HIRSCH REES & ASSOCIATES PTY LIMITED v THE TRUSTEES OF THE MORIAH COLLEGE BUILDING FUND SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL PRIESTLEY JA, SHELLER JA and FITZGERALD AJA 17 August 1998 [1998] NSWCA 107 ISSUE WHETHER FORMATION OF CONTRACT FOR SETTLEMENT OF PROCEEDINGS WAS SUBJECT TO EXCHANGE OF EXECUTED DEEDS — TRIAL JUDGE HOLDS NO CONCLUDED CONTRACT — RELEVANT CONSIDERATIONS Priestley JA. This is a summons for leave to appeal from orders made by Rolfe J in proceedings in which Hirsch Rees & Associates Pty Ltd (HRA) is claiming fees for architectural services from The Trustees of The Moriah College Building Fund (the Trustees). The summons was before a two judge bench last week and after fairly full argument was stood over until today to be heard by a bench of three so that the court if it felt a grant of leave were appropriate would be able to deal with the matter as on appeal, after full argument. In the intervening week the parties have agreed on and have put before the court today all the materials that need to be before the court for that full argument to take place, and the court has heard full argument from HRA on the first, and essential, step in its argument. HRA's proceedings for fees for architectural services arose from the building of the Moriah College High School at Queens Park in Sydney's Eastern Suburbs. In these proceedings (the HRA proceedings) the Trustees cross-claimed against HRA. All the claims and cross-claims with the exception of HRA's claim for fees and the Trustees" claim for repayment of sums allegedly overpaid were settled in 1993. The builder, Reed Constructions Pty Limited, brought separate proceedings against HRA and the Trustees who cross-claimed against each other in those proceedings. The proceedings by the builder against HRA and the Trustees and the cross-claims in those proceedings were settled on 19 December 1997. In the interval between the 1993 and 1997 settlements there had been continuing efforts by HRA and the Trustees to bring the remaining part of the HRA proceedings to a conclusion. These efforts came very close to being successful. Indeed, in today's argument HRA has claimed they were successful. However, until earlier this year preparation was under way for a contested trial, which looked like lasting some weeks. This prospect led the Trustees, on 27 March 1998, to seek interlocutory orders for security for costs. Then, by notice of motion filed on 20 May 1998, HRA sought declarations (as recounted in Rolfe JA's reasons) that: 1. On 20 March 1997 HRA entered into an agreement to settle the litigation with the Trustees in terms of a Deed which was put into evidence. 2. The agreement was subject to a condition, being the consent of Pacific Indemnity Pty Limited (Pacific Indemnity) the professional indemnity insurer of HRA and that that condition insofar as it was for the benefit JOBNAME: No Job Name PAGE: 2 SESS: 1 OUTPUT: Mon Feb 25 18:25:01 2008 /reports/caseml]/case/urj/9807978 UNREPORTED JUDGMENTS of the Trustees was fulfilled on the filing of the terms of settlement of 19 December 1997 between the builder, HRA and the Trustees. . The condition insofar as it was for the benefit of HRA, was waived by it on 20 March 1997 or, alternatively, by a letter of 30 April 1998, or, alternatively of 15 May 1998. . The agreement was 'now enforceable' as between HRA and the Trustees and that they be ordered to execute and exchange the Deed of 20 March 1997. The interest of Pacific Indemnity was that it had paid out moneys in the defence by HRA of the proceedings brought against it by the builder and it was asserting, in the event of any settlement between HRA and the Trustees, an entitlement to recover from the settlement sum paid to HRA the amount of such costs. When the Trustees" application for security and HRA's claim for declarations came before Rolfe J he thought he should first decide whether HRA's contention that there was a settlement could be made out, because, if it could, there would be no point in dealing with the application for security. Rolfe J saw the principal issue raised by HRA's claim for declarations as being whether HRA and the Trustees had evinced an objective intention to create contractually binding obligations which were contained in the Deed of 20 March 1997, notwithstanding that the Deed was never executed nor exchanged. No criticism was made today of this statement of the issue. In dealing with it, Rolfe J noted that it was submitted for HRA that by the time of the preparation of the Deed all terms had been agreed and notwithstanding the failure to execute and exchange it, the parties were nonetheless bound by those terms, and that for the Trustees it had been submitted that viewed objectively the facts pointed unequivocally to an intention on the part of HRA and the Trustees that the Deed should be executed and exchanged prior to there being any binding agreement between them and that in this respect it had been submitted that the case was within the third category described in Masters v Cameron (1954) 91 CLR 353, that is it was a case in which the intention of the parties was not to make a concluded bargain at all unless they executed a formal contract. Various further arguments were put on behalf of the Trustees before Rolfe J which were submitted to be complete answers to the settlement claim by HRA, even if the first submission, the no concluded contract submission, failed. Rolfe J however found in favour of the Trustees that at no stage had there been a concluded contract. That is the first point which HRA had to argue today. If it failed on this point then it became unnecessary for the courtto consider the further arguments relied on by the Trustees in opposition to the settlement claim. For HRA it was submitted that Rolfe J had made two principal errors in his approach to the question whether there had been a concluded contract or not. The first error was said to be that he had failed to give proper weight to the distinction said to exist between the approach of JOBNAME: No Job Name PAGE: 3 SESS: 1 OUTPUT: Mon Feb 25 18:25:01 2008 /reports/caseml]/case/urj/9807978 WRASCH REES & ASSOCIATES PTY LIMITED v THE TRUSTEES OF THE MORIAS COLLEGE BUILDING FUND (Priestley JA) courts to deciding whether parties had reached the stage of finding contractual agreement in two different kinds of case, conveyancing cases and settlement cases. The second error said to have been made by Rolfe J was a failure on his part to understand the true meaning of the communications between the parties and to appreciate that they had reached what was said to be a binding agreement on all substantial matters necessary to effect the settlement, subject to a condition about Pacific Indemnity, and that the need for a Deed related only to performance of the contract and not its formation in a binding way. In regard to the first claimed error it was submitted that a series of cases, including two decisions in this court, Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (Gleeson CJ, Kirby P, Powell JA, 11 October 1995) and Corban v Levett (Mahoney P, Meagher and Beazley JJA, 22 October 1996) had shown that the courts took a different approach in what were called conveyancing cases from that taken in what were called settlement cases when deciding whether binding contracts had been made between parties. It was submitted that there was a presumption established inregard to the conveyancing cases that, particularly in regard to sales of land, but also in regard to agreements to grant leases, that there would not be a binding contract between parties in the one case without exchange of contracts and in the other without the formal execution of lease documents. It was submitted that the settlement cases showed that there was a different presumption which was that in the absence of clear indication to the contrary, settlement cases did not require the formality of the exchange of documents before binding agreement was reached. The submission went further to the effect that the ordinary presumption would be the positive one that formalities were not required and settlement agreements should be regarded as being reached notwithstanding references between the parties to the bringing in to existence of formal documentation to record them. None of the cases referred to in the submissions for HRA supports the latter two propositions. The two Court of Appeal decisions in my opinion do nothing more than recognise the orthodox position in relation to conveyancing transactions. Whether the established position concerning conveyancing transactions should be described as a presumption, and if so what precisely is meant in such cases by presumption, are questions that need not be looked into today. The practical effect of the numerous decisions is well understood and is the result of the regular, but not invariable, way in which conveyancing transactions are conducted. The position is quite different in regard to settlement cases. There is no regular practice which can be pointed to. Parties may use informalmethods of reaching settlement contracts or they may adopt more formal methods. Whether or not a settlement contract of the binding kind is reached in a particular case will depend on the facts of the particular case. The authorities which were relied on in this court concerning settlement cases were drawn to Rolfe J's attention. In my opinion he did not misunderstand them and did not use any impermissible methods of JOBNAME: No Job Name PAGE: 4 SESS: 1 OUTPUT: Mon Feb 25 18:25:01 2008 /reports/caseml]/case/urj/9807978 UNREPORTED JUDGMENTS construction in his approach to the documentation concerning the alleged settlement agreement that was put before him. The submission about the second error said to have been made by Rolfe J in my view in substance challenged the conclusions his Honour reached upon the proper interpretation of the documentation. In deciding whether the parties had reached the stage of concluded agreement Rolfe J made a detailed survey of the correspondence and documentation passing between the solicitors for the parties both up to 20 March 1997 and subsequently. I do not think it necessary to go over all the ground covered by Rolfe J. The details are available in his reasons. The correspondence shows discussion of settlement from at least August 1996. By late November 1996 the correspondence shows the parties getting closer to agreement on draft terms of settlement. A letter of 3 December 1996 shoes them still proceeding on this footing. However, in a telephone conversation between the solicitors on 6 December 1996, the solicitor for the Trustees introduced the proposition that settlement would be by Deed. From then on the correspondence shows a draft deed, with variousamendments being proposed by either side, going back and forth between the solicitors through to March 1997. By 20 February 1997 matters had reached the stage where the solicitors for the Trustees sent a further draft to the solicitors for HRA in which they said: We assume that the deed is now in a form which, subject to the approval of the settlement by your client's insurer, can be executed by our respective client. The solicitors for HRA replied by facsimile dated 12 March 1997 mentioning a matter not yet agreed between the parties and saying: .. we are instructed that our client requires agreement on this matter and for such an agreement to be inserted in any Deed of Settlement that may be finally signed. The solicitors for the Trustees by facsimile dated 14 March 1997 proposed further alterations to the draft Deed, in reply to which the solicitors for HRA wrote on 20 March 1997: Thank you for your facsimile transmission of 14 March 1997, the contents of which have been considered by our clients. Please forward to us an engrossed copy of the Deed of Settlement for final approval by our client and execution. Our client is desirous of exchanging the signed Deed of Settlement on Monday, 24 March 1997.' At this point Rolfe J said the letter of 20 March 1997 'made clear that the Deed was required "for final approval" and "for execution" and that it was the contemplation of HRA that the executed Deed would be exchanged'. He went on, that in his view,""insofar as these matters need to be made any plainer, this communication achieves that and it will take very strong evidence to show that it was not the intention of the parties, viewed objectively, that there was only to be a concluded agreement between them upon the exchange of an executed Deed. There is no such evidence.' JOBNAME: No Job Name PAGE: 5 SESS: 1 OUTPUT: Mon Feb 25 18:25:01 2008 /reports/caseml]/case/urj/9807978 WRASCH REES & ASSOCIATES PTY LIMITED v THE TRUSTEES OF THE MORIA COLLEGE BUILDING FUND (Priestley JA) It was this passage which was criticised in the submissions for HRA for not giving proper attention to what was said to be the trend shown by the settlement cases. I earlier indicated that I did not think the trend relied on had resulted in any new rules of construction or evidentiary presumptions but that cases falling into the category of settlement cases would always have to be decided by reference to their particular facts. There is no reason for example, and certainly no rule, requiring that a settlement case can not fall into the third category of Masters v Cameron. Whether or not it does will depend upon the intentions of the parties as manifested in their communications with one another. The last sentence quoted from Rolfe J's reasons shows that he was giving attention to the facts of the particular case and that it was in light of those facts that he concluded the case fell into the third Masters v Cameron category. It does not indicate that he was overlooking the decisions, to which he had been referred by counsel for HRA, about the appropriate approaches to the conveyancing class of cases on the one hand and the settlement class on the other. Rolfe J went on to deal with a facsimile sent by the solicitors for the Trustees in reply to the facsimile earlier in the day of 20 March 1997. Hetook the view that this facsimile made it abundantly clear that the anticipation of the Trustees was the same as that of HRA, namely that the contract would be made when the Deed was executed and exchanged. In my opinion the documentation up to and including the communications of 20 March 1997 fully supports the conclusion reached by Rolfe J. He found further support in the terms of the draft Deed itself in the form it had reached by 20 March 1997. I think it was legitimate for him to take the terms of this document into account, as part of the correspondence between the parties up to and including that day. Recital E and clause 2 of the draft, as well as the general tenor of the draft, in my opinion tell very heavily against the idea that the parties who had been negotiating so particularly for so long concerning the proposed settlement would regard themselves as bound to any agreement until exchange of executed Deeds. The introduction of the formal method of settlement by Deed in December 1996 is itself an indication, not conclusive of course, but entirely consistent with all the other indications throughout the correspondence, that what was required for settlement was not agreement upon the terms contained in a draft Deed, but an agreement contained in a formally executed Deed. A further facsimile of 20 March 1997 from the solicitors for the Trustees again fitted exactly with the view that the parties were proceeding on the basis that before any agreement between the parties became final and binding executed deeds would be exchanged. Rolfe J then travelled through the subsequent communications between the parties, which he saw as being uniformly consistent with the view he had formed of what the position was as at 20 March 1997. I agree, but I do not think that it is necessary, having reached the conclusion I have concerning the correspondence up to and including 20 March 1997, to go further than to note my agreement with Rolfe J's analysis of the subsequent correspondence and to say that in my opinion JOBNAME: No Job Name PAGE: 6 SESS: 1 OUTPUT: Mon Feb 25 18:25:01 2008 /reports/caseml]/case/urj/9807978 UNREPORTED JUDGMENTS his thorough treatment of those matters, which in his view reinforced the conclusion that there had been no concluded agreement at 20 March 1997, was sound. I will however mention one matter upon which particular reliance was placed today in the submissions for HRA. That is the terms of a facsimile dated 21 March 1997 sent by the solicitor for the Trustees to the solicitors for HRA. The first paragraph of this letter was said to be a very clear indication that the writer regarded a firm contractual settlement to have been reached (although subject to the condition that Pacific Indemnity approve of it). I do not think the letter can be read in this way. Rolfe J set the terms of the letter out in full in his reasons and stated his opinion as being that it was completely contrary to the idea that there was a concluded agreement as at 20 March 1997, even if subject to the condition concerning Pacific Indemnity. In my opinion this is a much more satisfactory interpretation of the letter, which must be read in the light of the correspondence which preceded it, than the alternative reading proposed. As previously mentioned, the point I have so far been dealing with is one upon which it would be necessary for HRA to succeed before the court needed to consider any further points the matter now before it. There does not seem to me to be sufficient doubt about the correctness of Rolfe J's view on this first point to make it useful to consider any of the further matters that could otherwise arise. However, the point seems to me to be one of sufficient importance to the parties and to their litigation to make it desirable that this court pronounce its final view upon it. I therefore suggest that leave be granted, but that the appeal be dismissed with costs. The general proceedings would then return to Rolfe J, to take up the question of the Trustees" application for security for costs at the stage it had reached before he dealt with HRA's applications for declarations. Sheller JA. I agree with Priestley JA. Fitzgerald AJA. I agree with Priestley JA 35 Orders accordingly. Counsel for the appellant: K TAPSELL (SOLICITOR) Solicitors for the appellant: COWLEY HEARNE 40 Counsel for the respondent: MD YOUNG Solicitors for the respondent: WATKINS TAPSELL