In this decision, Jackson J provided useful guidance as to the operation of entire agreement clauses in relation to alleged collateral contracts. The issue arose in the context of an agreement to purchase a vacant townhouse development site. The plaintiff contended that when the defendant sold the land it made a series of representations to the effect that it would complete certain improvements on adjacent land which would have improved the value of the plaintiff’s townhouse development. The plaintiff claimed that a collateral contract arose. The defendant relied upon an entire agreement clause to exclude the alleged collateral contract. Jackson J agreed that the collateral contract was excluded by the entire agreement clause. In particular, his Honour refused to follow the decision of the Victorian Court of Appeal in McMahon v National Foods Milk Ltd (2009) 25 VR 251.
17 December 2018
In 2009, Peter Corcoran caused the trustee of his superannuation trust to purchase a vacant townhouse development site from Stockland Development Pty Ltd ("Stockland") ("the Land"). . He expected that Stockland would carry out proposed works on an adjacent lot, described as the "Wetlands Site", substantially in accordance with a plan, described as the "Wetlands Plan", subject to some orally agreed or indicated variances ("Wetlands Plan Works"). . In particular, Mr Corcoran expected that the Wetlands Plan Works would result in the townhouses having an attractive view over the developed Wetlands Site, which would enhance their value, because he expected that (i) all or nearly all of the trees on the Wetlands Site that obscured views from the Land to the east would be removed, and (ii) the attractive landscape features shown on the Wetlands Plan would improve the visual amenity of the Wetlands Site. . Mr Corcoran’s expectations were created by a series of oral representations and one written representation made by employees of Stockland with whom he negotiated. .
As events transpired after the purchase, Stockland did not carry out any of the proposed Wetlands Plan Works. . Coast Corp Pacific Pty Ltd ("Coast Corp"), the successor to the trustee's rights by reason of its appointment as replacement trustee, claimed damages from Stockland for breach of contract. , . It alleged that it had suffered loss or damage in selling the townhouses because, as constructed, they had inferior views and a reduced amenity when compared with that which they would have had if the proposed work had been carried out. . One argument advanced by Coast Corp was that the representations made constituted an agreement by way of collateral contract that in consideration of the trustee entering into the contract of sale, Stockland would (i) develop the Wetlands Site substantially in accordance with the Wetlands Plan, (ii) clear substantially all of the trees on the Wetlands Site, (iii) develop the Wetlands Site to a standard comparable to the work in a development in an adjoining suburb, and (iv) finish the development of the Wetlands Site within a reasonable time. .
The contract of sale contained the following entire agreement clause:
"To the extent permitted by law, in relation to the sale of the Land by the Vendor to the Purchaser, this Contract:
- (a)embodies the entire understanding of the parties, and constitutes the entire terms agreed on between the parties; and
- (b)supersedes any prior written or other agreement between the parties." .
In its defence, Stockland alleged that the entire agreement clause excluded the alleged collateral contract. . One of Coast Corp's submissions in response was that, as a matter of construction of the contract of sale, the entire agreement clause did not operate so as to exclude evidence of or a finding of collateral contract. . Jackson J noted that some cases draw an analogy between an entire agreement clause and the parol evidence rule. . However, he disagreed with any suggestion that an entire agreement clause does no more than operate as "an evidentiary foundation for a conclusion that the agreement is wholly in writing". . His Honour said:
"[A]n entire agreement clause is a positive contractual provision containing a promise by each party to the other that the contract embodies the entire understanding of the parties and constitutes the entire terms agreed on between them in relation to the subject matter. For a party to depart from that promise is a breach of contract. When a party faced with a claim based on a contractual term inconsistent with the terms of an entire contract clause pleads it by way of defence, they set up a term of the contract itself and a binding contractual promise by the opposite party as to the extent of the terms of the contract. They do not merely rely on a presumptive rule of evidence." .
Against this reasoning, Coast Corp relied on the decision of the Victorian Court of Appeal in McMahon v National Foods Milk Ltd (2009) 25 VR 251. . In that decision, the Court of Appeal construed an entire agreement clause so as not to exclude evidence of a collateral contract. . The Court reasoned that "because proof of a collateral contract is an exception to the parol evidence rule, [an entire agreement clause] should not be permitted to stand in the way of proof of a collateral contract unless the [entire agreement clause] is clearly expressed to have that effect". . The Court considered, by reference to an argument advanced in an article, that:
"if there is no express reference to collateral contracts, it seems odd to regard a clause in the main agreement as effective to prevent enforcement of the collateral contract. At least in cases where the alleged collateral contract was contemporaneous with the main contract, it would seem logical to infer that the parties intended the collateral contract to operate because otherwise the very reason why one party entered into the main contract — the willingness of the other to enter into the collateral contract — would count for nothing." .
Jackson J noted that the Court's reasoning on this point was not part of the ratio of the decision. . His Honour disagreed with it, saying:
"With all respect, I cannot agree that it is 'odd' for an entire agreement clause to exclude a collateral contract, because otherwise the very reason the promisee under the collateral contract entered into the main contract would count for nothing. If primacy is to be given to that reason for entering into the main contract, logically it extends to all of the terms of the main contract that would operate inconsistently with the promises made by the promisor under the collateral contract." .
His Honour noted that he was fortified in his conclusion by the statement of the plurality of the High Court in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 that entire agreement clauses "have been held effective answers to claims to set up collateral agreements". . Accordingly, his Honour concluded:
"In my view, there is no special rule of construction that applies to the operation of an entire agreement clause, to the effect that something amounting to express words of exclusion of a collateral contract is required before an entire agreement clause can apply to a collateral contract. To the extent that McMahon is suggested to stand for a contrary rule or approach, in my view, it is not binding authority and I would not follow it." .
In the result, Jackson J concluded that the alleged collateral contract was excluded by the entire agreement clause. .
M J Hafeez-Baig