In this case, G+T acted for Universal Music Australia Limited which successfully argued that the terms of a proposed deed of release (which was the subject of months of negotiations between the parties) were binding on Mr Pavlovic despite him never actually executing the deed. This case provides some interesting observations by the Court on the circumstances in which parties will be legally bound by the terms of their agreements in the absence of formal execution and exchange.
Mr Pavlovic and Universal Music Australia Limited (Universal Music), through their solicitors, negotiated the terms of a deed of release to resolve a dispute between them (which had not yet been the subject of legal proceedings).
On 23 December 2014, Universal Music’s solicitor emailed the proposed deed of release (Deed) to Mr Pavlovic’s solicitor, indicating that the Deed was “in final form for execution” and proposing a process for entry which involved each party executing it and sending the original and a scanned copy to the other party. After seeking instructions, on Christmas eve Mr Pavlovic’s solicitor informed Universal Music’s solicitor that Mr Pavlovic “will sign” the Deed.
Several weeks later, Mr Pavlovic informed Universal Music that he had signed the Deed and was planning to provide the signed copies. He also began performing some of his obligations under the Deed. Mr Pavlovic later claimed to have never in fact executed the Deed and argued that it was not binding on him. He attempted to explain his statements and actions to the contrary as a decision by him to mislead Universal Music about the status of the Deed in order to buy himself time to renegotiate the settlement terms.
In finding for Universal Music that the terms of the Deed were legally binding on Mr Pavlovic despite him never having executed it, Sackar J in the Supreme Court of New South Wales held that:
- the circumstances (namely, a situation from which there was no possibility of rapprochement, a commercial dispute which could affect third parties, and the looming Christmas/New Year break) all indicated a need to bring things to finality;
- execution and exchange of the Deed, objectively viewed in the circumstances, amounted only to “steps in the completion of an administrative process” and such process did not, nor was it intended to, affect the binding nature of the contract;
- these were 2 sophisticated parties represented by 2 sophisticated law firms and it if had been seriously intended that there was to be no binding agreement until execution and exchange had occurred, it would have been simple to say that;
- correspondence between Mr Pavlovic and his solicitor indicated that his solicitor had actual authority to bind him to the terms of the Deed. In this regard, Sackar J observed that in a litigious context, a solicitor will also have ostensible authority to bind a client (although noted that generally in a non-litigious context, a solicitor will not have such ostensible authority but will require actual authority to bind a client);
- on the basis of the above, a reasonable person in the position of either of the parties and having reached the end of the negotiations, would have understood that a binding agreement had been reached with each side explicitly instructing their respective solicitors to indicate unequivocal acceptance of the terms and conditions embodied in the Deed; and
- Mr Pavlovic’s subsequent conduct (in falsely stating to Universal Music that he had executed the Deed and taking steps such as transferring domain names and returning materials) indicated that he was performing his obligations under, and was consistent with him admitting that he was bound by, the Deed.
Many thanks to Michael Williams and Rebecca Smith, who acted for Universal Music, for their assistance in preparing this summary.