Max Reflectance Investment Pty Ltd v Drazcat Pty Ltd
[2009] QSC 24
To print this judgment please return to the case and click on the PDF icon
next to the
case name. For court use, a full PDF copy is required or preferred.
Exit Distraction Free Reading Mode
Please Note: You are about to print a copy of the onscreen
version of
this judgment. For court use, a full PDF copy of the judgment is required or preferred. Please
return to
the case for PDF printing options.
- Notable Unreported Decision
- Max Reflectance Investment Pty Ltd v Drazcat Pty Ltd[2009] QSC 24
- Add to List
Max Reflectance Investment Pty Ltd v Drazcat Pty Ltd[2009] QSC 24
Max Reflectance Investment Pty Ltd v Drazcat Pty Ltd[2009] QSC 24
SUPREME COURT OF QUEENSLAND
CITATION: | Max Reflectance Investment Pty Ltd v Drazcat Pty Ltd & Ors [2009] QSC 24 |
PARTIES: | Max Reflectance Investment Pty Ltd V Drazcat Pty Ltd ACN116565621 as trustee for the Drazek family trust (first defendant) Andrew Drazek Joanna Drazek |
FILE NO/S: | 4981/08 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 25 February 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 9 December 2008 |
JUDGE: | Martin J |
ORDER: | Application dismissed. |
CATCHWORDS: | PRACTICE & PROCEDURE - summary judgment CONTRACT - dispute arising pursuant to sale of business – where Heads of Agreement signed 'subject to a formal deed' - whether communications in contemplation of reaching a binding agreement have formed a contract - whether parties intended to form a concluded bargain - extrinsic evidence - nature of sum paid - legal principles discussed |
COUNSEL: | G. Coveney for the Applicant/2nd and 3rd Defendants |
SOLICITORS: | Bennett Carroll for the Applicant/2nd and 3rd Defendants |
- The second defendant (Mr Drazek) seeks:
- Judgment against the plaintiff (MRI) on his counter claim;
- Judgement against MRI on its claim;
- Alternatively that certain paragraphs of the further amended statement of claim (FASOC) and the amended reply and answer (ARA) be struck out; and
- Costs.
- The first defendant (Drazcat Pty Ltd) is in liquidation and took no part in the application. The third defendant, although a party to the application, was not represented at the hearing of this matter. Mrs Drazek was not a signatory to a document which forms the basis of the matter to be decided on this application.
Background
- These proceedings arise out of the sale by Drazcat to MRI of the business of “Bodyworks Health Club” at Coopers Plains. The sale was the subject of a written contract which settled on 10 April 2008.
- Disputes arose, after settlement, as to (among other things) the membership numbers alleged to have been represented to MRI prior to entry into the contract.
- On 28 May 2008 MRI commenced proceedings in this Court, seeking damages for breach of the contract, contravention of the Trade Practices Act and negligent misstatement.
- On 30 May 2008 Mr Drazek and his solicitor (who, at that time, was also representing Drazcat) attended a meeting at the offices of MRI’s solicitors. At that meeting the Claim and Statement of Claim was served on Drazcat and Mr Drazek. Negotiations took place and, at the conclusion of the meeting, a hand written document was produced which was signed by the solicitor for MRI and the solicitors for Drazcat and Mr Drazek.
- The document was entitled “Heads of Agreement”. It consisted of ten numbered paragraphs as follows:
- The settlement sum is $280,000 in full and final settlement of the claim against all defendants.
- $50,000 will be paid to the plaintiff today by way of trust acc chq.
- $100,000 will be paid by 4pm Thursday 5th June with the executed deed.
- Repayments of $1500 pm for balance.
- Each 6 months at least $25,000 must have been paid. Security by mortgage and charge. Can be repaid without penalty.
- Interest will be payable on outstanding sums based on a fixed interest rate of an Australian bank, the details to be advised.
- Statutory decs + accs verification for each defendant for last 5 years of all assets, liabilities, movements and details of where funds have gone. Annexed to deed.
- Claw back for untruthfulness.
- Subject to a formal deed.
- Confidentiality.
- On the day the “Heads of Agreement” was signed the sum of $50,000 was paid by the solicitors for Drazcat and Mr Drazek to the solicitors for MRI. It is contended by MRI that that sum, while paid, was actually retention moneys which had been held by the solicitors for the payers as part of the purchase price. This was not disputed. No other payments were made by Drazcat or Mr Drazek.
- Correspondence then ensued between the solicitors in which various draft deeds of settlement were exchanged. No deed was executed. On 14 July 2008 MRI’s solicitors wrote to the solicitors for Drazcat and Mr Drazek and asserted that “the Heads of Agreement was terminated for the reasons which have been made patently clear.”
The Pleadings
- The FASOC contains three heads of claim:
- Damages for breach of contract;
- Damages for breach of s 52 of the Trade Practices Act 1974; and
- Damages for negligent misstatement.
- The counter claim upon which Mr Drazek seeks judgment is for a declaration that the “Heads of Agreement” constitutes a concluded contract which bound MRI, Drazcat and Mr Drazek. The effect of that plea is that all the claims have been settled in accordance with the “Heads of Agreement”.
The Principles
- The fundamental authority in this area is the High Court’s decision in Masters v Cameron,[1] where the Court dealt with the situation 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.[2] The Court said that such a circumstance may belong to any of three classes.
- Those classes are:
- 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;
- It may be a case in which the parties have completely agreed on 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
- 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.
- In each of the first two classes there is a binding contract. The third class, though, is fundamentally different. As the court said:
“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….. 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… or simply because they wish to reserve to themselves a right to withdraw at anytime until the formal document is signed.”[3]
- Whether an agreement falls into the third class:
“Depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape…. Nor is any formula, such as ‘subject to contract’ so intractable as always and necessarily to produce that result…. But the natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v Marchioness of Ely[4]… ‘If to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation’…
“This being the natural meaning of ‘subject to contract’, ‘subject to the preparation of a formal contract’, and expressions of similar input, it has been recognised throughout the cases on the topic that such words prima facie create 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.”[5]
- Much consideration has been given to the principles to be applied in this type of case and many of them have been conveniently collected in the decision of Tamberlin J in Francis v New South Wales Egg Producers Co-Operative Pty Ltd.[6] His Honour said:
“In considering the recurrent problem as to whether communications between parties in contemplation of eventually reaching a binding agreement have crystallised into a concluded bargain, the courts have enunciated a number of guidelines. For present purposes some of the relevant principles are as follows:
1.The central question is whether it was the intention of the parties at the relevant date, time, or point of negotiations, to make a concluded bargain.
2.The use of words such as ’subject to contract’ or ‘subject to preparation of a formal contract’ and expressions of similar import prima facie give rise to an overriding condition that no binding contract is concluded at that point, but rather what has been negotiated is an intended basis for a future contract. See Masters v Cameron (1954) 91 CLR 353; Rossiter v Miller (1878) 3 App Cas 1124 at 1152; Santa Fe Land Co Ltd v Forestal Land Timber and Railways Co Ltd (1910) 26 TLR 534 ("subject to a formal contract to be approved by your solicitors and ourselves").
3.The answer to the question referred to above depends on the intention disclosed by the language the parties have used and no special form of words is essential to be used in order to manifest an intention that there will be no binding contract as between the parties before execution of the agreement in its ultimate form. See Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 per Hope JA.
4.It is necessary in resolving the question to have regard to the commercial circumstances surrounding any exchange of communications and, in particular, to the subject matter of the communications. See Allen v Carbone (1975) 132 CLR 528 at 531-532.
5.The subjective intention of the parties is not the controlling factor; what is important is their intention as expressed in the language they have used. See Inland Revenue Commissioners v Raphael (1935) AC 96.
6.Where the communications which the parties have exchanged are in writing, the question of their intention is prima facie to be resolved objectively and as a matter of construction of the relevant documents. Actual subjective intention to contract can be taken into account but it is not determinative. See Air Great Lakes Pty Ltd at 330 D per Mahoney JA.
7.Where the communications and dealings between the parties indicate that some matters have been agreed upon, but there remain other significant terms yet to be resolved, then there will normally be no concluded bargain. Cf Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582.
8.Regard can be had to the nature and the subject matter of the contract and its complexity in order to determine what terms would normally be expected to be covered in a binding contract. This is not controlling in itself but provides a useful background against which to consider the question of whether there is a concluded bargain.
9.Subsequent conduct of the parties can be taken into account. Later correspondence, oral communications, and action or inaction by the parties can be relevant in determining that it was not the intention of the parties to be presently bound before all the essential preliminaries had been agreed to, nor until a final contract had been drawn up, embodying all the matters incidental to a transaction of such a nature. See Barrier Wharfs Ltd v W Scott Fell and Co Ltd (1908) 5 CLR 647 at 669 ; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 547-348.
10.In some circumstances, such as where there is a pressing and urgent need for one or more of the parties to engage immediately in some activity under the contract and where they cannot wait for the execution of a formal document, the court may find that the parties intend to be bound immediately in order to regulate legally the performance of such urgent activity. See Hooper v Commonwealth of Australia (Unreported, Sup Ct NSW, Comm Div, Gleeson CJ, 16 Nov 1990), which held that the Heads of Agreement there under consideration were intended to have an immediately binding effect.
Application of Principles
- The use of the words “subject to a formal deed” demonstrates, prima facie, an intention that the parties will not be bound in the absence of such a “formal deed”.
- In these circumstances, other matters which bear upon the effect of that statement include:
- The “Heads of Agreements” was drawn up by the parties’ solicitors, who should be presumed to know the effect of that statement.
- On the day the “Heads of Agreement” was executed a sum of $50,000 was paid by Drazcat and Mr Drazek to MRI, but as I have noted above, the identity of that sum is more likely to be retention money than moneys paid under this agreements.
- The uncertainty of certain parts of the “Heads of Agreement”- eg., “claw back for untruthfulness” and “security by mortgage and charge”.
- The inconsistency within the “Heads of Agreement”- eg., “4. Repayments $1500 pm for balance” but in “5. Each 6 months at least $25,000 must have been paid.”
- The reference in paragraph 3 to the second payment being made with “the executed deed”.
- The reference in paragraph 7 to documents being annexed to the deed.
- While the parties did exchange draft deeds, they included new terms and deleted requirements set out in the “Heads of Agreement”.
- These matters are all consistent with the “Heads of Agreement” being no more than that. The use of the words “subject to formal deed” in the “Heads of Agreement” and the factors set out above clearly establish that there was no finalised agreement between the relevant parties.
- The application for summary judgment is dismissed.
- The application also sought orders with respect to the striking out of certain paragraphs of the FASOC and ARA. No argument was directed towards that alternative application.
- The application is dismissed. I will hear the parties on costs.