Supreme Court New South Wales Medium Neutral Citation: Stewart v Stewart [2012] NSWSC 423 Hearing dates: 30 April 2012 Decision date: 30 April 2012 Jurisdiction: Equity Division Before: Pembroke J Decision: No concluded agreement reached Catchwords: CONTRACT - whether concluded agreement reached - principles applicable - sale of business - significance of background context - family acrimony - intention that there be exchange of signed contracts - matters outstanding Cases Cited: Allen v Carbone (1975) 132 CLR 528 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Byrnes & Anor v Kendle (2001) 243 CLR 253 Masters v Cameron (1954) 91 CLR 353 Taylor v Johnson (1983) 151 CLR 422 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Category: Separate question Parties: Craig Charles Stewart - plaintiff Margaret Ruth Stewart - first defendant Brian John Pickup - second defendant Moore Stephens Sydney West Pty Limited - third defendant Representation: Counsel: Craig Charles Stewart - litigant in person A F Fernon - for the first defendant P A Horvath - for the second and third defendants Solicitors: Craig Charles Stewart - litigant in person Champion Legal - for the first defendant Curwoods Lawyers - for the second and third defendants File Number(s): 2012/00085835 EX tempore Judgment Introduction 1The issue in this case is whether a concluded agreement has come into existence. The subject matter is a business known as Grasshopper Environmental Services. It was previously carried on in partnership by the plaintiff and his wife, the first defendant. Grasshopper has carried on a commercial waste disposal business based in Katoomba since about 1980. There is no contentious evidence. The communications which are said to give rise to the concluded agreement are set out in an exchange of emails. To the extent that certain conversations are relevant, the defendants do not dispute the plaintiff's account of them. 2The applicable principles are well-established. Whether or not the parties should be taken to have entered into a binding legal agreement is to be determined objectively having regard to the language of their communications in the context in which they occurred: Allen v Carbone (1975) 132 CLR 528; Taylor v Johnson (1983) 151 CLR 422; Australian Broadcasting Corporation v XIVth Commonwealth Games (1988) 18 NSWLR 540; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Byrnes & Anor v Kendle (2011) 243 CLR 253. 3When the facts of this case are considered, and those principles are applied, it is I am afraid to say, not reasonably possible to conclude that the parties in this case should be taken to have reached the point where the law would recognise that mutual legal binding obligations have come into existence. From the outset the parties intended that there would be no binding contract until executed contracts were exchanged. This is apparent from the offer dated 3 February 2012 from Twynam Group Pty Limited to the second defendant. Twynam Group Pty Ltd is the competing bidder. The second defendant is effectively the vendor. The Twynam offer stated, among other things, This offer is subject to due diligence, approval for finance and the execution of a form of contract between the parties. (emphasis added) 4When the plaintiff put his first offer on 10 February 2012 he said that he made his offer based on the Twynam Group offer dated 3 February 2012 to enable immediate direct comparison. Objectively speaking, he was adopting the terms and structure of the Twynam Group offer, including the important statement that the offer was subject to execution of a form of contract between the parties. The natural meaning of "subject to contract", or similar such phrases, has been recognised on countless occasions. Prima facie, those words create an overriding condition so that what has been agreed upon must be regarded as the intended basis for a future contract, not as constituting a contract itself: Masters v Cameron (1954) 91 CLR 353 at 362 to 363. 5That was the context in which the second defendant wrote to the plaintiff on 21 February 2012 in relation to his offer. He reiterated the need for the exchange of signed contracts, stating at the conclusion of his letter: Contracts are to be signed within seven days of being mailed to the purchaser and the vendor. Background Circumstances 6The background circumstances that have given rise to this dispute indicate why it is unlikely that a person in the position of the second defendant would ever have intended to enter into a binding contract prior to the exchange of signed contracts by each party. The second defendant is an accountant who was appointed by the Family Court of Australia and was authorised to sell the business formerly conducted by the plaintiff and the first defendant. He can be expected to have proceeded cautiously. He knew that there were two competing bidders and that the relationship between the plaintiff and the first defendant was antagonistic and acrimonious. 7The plaintiff and the first defendant are both members of the church known as the Exclusive Brethren. They married in 1978 and had five sons who are all members of the church. Each of the sons worked in the business with his father. In October 2009 the plaintiff was "withdrawn from" by the church. This is the term that the church uses for excommunication of a member. As a result the plaintiff has been ostracised by his wife, his sons, grandchildren, elderly parents and the rest of the family. His family and other church members employed by the business refuse to work or associate with him. All of this was known to the second defendant. He was well-aware of the acrimony which subsisted between the competing parties. 8The company known as Twynam Group Pty Limited is a company of which three of the sons are shareholders and directors. They are effectively on the mother's side. The mother and the sons seek to procure the business in opposition to the plaintiff. As I have said, these are all matters of which the second defendant was well-aware. They represent added reasons, in the unique facts of this case, why a Court would be slow to infer that a concluded contract has come into existence informally, prior to the exchange of signed contracts. Outstanding Matters 9In addition to the objective indications of an underlying intention that there would be no binding agreement until the exchange of signed contracts by both parties, there were a number of matters as at 23 February 2012 that had not been agreed and which remained in a state of opacity. Some of these matters were important, although the plaintiff contended that, in truth, as far as he was concerned, they were mere matters of mechanics. 10In a case where it is said that a concluded contract has been brought into existence, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention objectively determined: ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548. 11In the second defendant's letter dated 21 February 2012 he specified, among others, the following matters. He said the deposit was $86,280 payable on exchange of contracts. He stated that settlement must occur within 30 days from date of contract. He stated that the rental terms and conditions of the business premises at 41-45 Barton Street were not part of the contract of sale and that the contract of sale was not subject to the rental of the premises. And he added that the purchaser would not be entitled to continue to use the partnership's supplier trading accounts. 12On 22 February 2012 the plaintiff had a conversation with the second defendant's partner, Mr O'Leary. Several important matters emerged from that conversation. The plaintiff said that he was not prepared to pay a deposit because he was getting lease finance. He said that the business premises were essential and that his offer was subject to being able to rent the premises. Thirdly, he added that he needed to consult a solicitor and accountant about the contract for sale and the entity that he should use to purchase the business. 13On 23 February Mr O'Leary responded to the matters raised by the plaintiff after discussing them with the first defendant. He agreed that no deposit would be payable on exchange. It is relevant to note that he used the language of "exchange" of contracts. He added, however, that the sale would be dependent upon the plaintiff securing a tenancy of the business premises at 41-45 Barton Street. This was an acknowledgment of the importance to the plaintiff of not being subject to a contractual obligation until he had secured the premises which he believed were necessary for the conduct of the business. He said so expressly in his conversation with Mr O'Leary on 22 February. 14Later on 23 February the plaintiff responded to Mr O'Leary's email in relation to the request that he commence negotiations to secure tenancy of the premises. The plaintiff said, I commenced negotiations on this yesterday and at Brian's request will expedite this and keep him posted. 15The plaintiff's email then set out two significant proposed temporal qualifications. The perceived necessity for each of them appears to have arisen primarily out of his desire to have sufficient time to secure the premises before being contractually bound. He said that the word "expected" should be inserted in relation to the 30 day period for settlement. He also said that the word "expected" should be inserted in relation to the seven day period for signing contracts after they were submitted to him. 16Two other matters remained outstanding. He requested seven days rather than forty-eight hours within which to advise suppliers of the new ownership of the business and he stated that he still needed to consult a solicitor and accountant, including as to what entity he should use. 17Later on 23 February Mr O'Leary responded. He stated that the time for advising suppliers must remain at forty-eight hours. He added that it was normally twenty-four hours. He rejected the requests to qualify the 30 day time period for settlement, and the seven day time period for signing and exchange of contracts, by the addition of the word "expected". He reiterated the importance of obtaining finance approval and securing the premises. Importantly, he stated that Brian has to have an expectation that they will be signed within a reasonable time (usually seven days) and exchanged. If not, he has the right to consider other offers. 18Looked at objectively the letter contemplated at least three further steps before the plaintiff would or could acquire the business. The first was the preparation of contracts. The second was the signing and exchange of contracts. And the third was settlement within 30 days after signing and exchange. 19Significantly, the letter contemplated that the second defendant would be free to consider other offers if contracts were not signed and exchanged within seven days of submission of contracts. I do not think this is consistent with a binding legal obligation having come into existence on 23 February 2012. It reflects, I think, a willingness on the part of the second defendant to remain open to other offers, but to give preference to the plaintiff for seven days after submission of contracts. Even then, I do not think that the second defendant's position constituted a binding legal obligation. It was more in the nature of an assurance. But whatever it was, there was, in my view, no binding legal commitment for the sale of the business to the plaintiff as at 23 February 2012. 20Ultimately, by the end of the day on Thursday 23 February 2012, the final position was that the purchaser entity had not been resolved; the second defendant had rejected the plaintiff's request for a qualification of the proposed time stipulation relating to settlement within 30 days of exchange; and the second defendant had rejected the plaintiff's requests for further time in relation to the signing of contracts within seven days of submission and the period for advising suppliers of the change of ownership. 21The evidence did not reveal any further written communications or conversations in relation to those outstanding matters. However in submissions, the plaintiff said that he was prepared to go along with Mr O'Leary's requirements and that his acceptance can be inferred from the terms of Mr O'Leary's email and the sequence of events which led to it. He said that what appeared to have been outstanding matters were not, in truth, properly so characterised and were certainly not stumbling blocks. There is some slender support for this analysis in that Mr O'Leary did not seem, in his letter, to be seeking a response. He appears, instead, to be speaking prescriptively, laying down the vendor's requirements. But nonetheless the plaintiff's position, according to the evidence, was certainly uncertain and opaque. I am not prepared to infer acceptance by the plaintiff of each of the matters set out in Mr O'Leary's letter dated 23 February 2012, without clear evidence to that effect. 22More fundamentally, however, there was nothing to indicate by 23 February 2012 that the parties had moved away from the position which had been maintained from the outset, namely, that any offer or acceptance was subject to execution of contracts. I have already explained why this seems to me to be a primary reason why I am not able to conclude that a binding legal obligation came into existence on 23 February 2012. 23On the following day, 24 February, the second defendant received a counter-offer from the other family members represented by Twynam Group Pty Limited. This was for a higher amount. At about the same time, the first defendant also informed the second defendant that she was not happy with an agreement with the plaintiff that did not require him to pay a deposit. Conclusion 24For all of those reasons, I do not think that there was any legal impediment preventing the second defendant from entertaining the competing offer received from Twynam Group Pty Limited on 24 February. He had not, by that stage, reached the point where a legally binding contract had come into existence with the plaintiff. o0o DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 May 2012