This case serves as a reminder that there may be a concluded contract between contracting parties despite the fact that formalities of execution have not yet been complied with in circumstances where the conduct of the parties indicates an intention to be bound.  Specifically in this case, a contract on the terms of a final deed of settlement was held to have been concluded on the basis that there was an acceptance of an offer on the terms of the deed of settlement even though the deed of settlement was never formally executed.  Parties need to take care where they only intend to be bound on the exchange of executed counterparts of a deed that they do not engage in conduct which indicates an intention to be bound prior to exchange.

Gladstone Area Water Board and Gladstone Regional Council (Gladstone entities) and AJ Lucas Operations Pty Ltd (AJ Lucas) were parties to a Construction Contract which was terminated by a Deed of Termination between the parties.  In addition, the Deed of Termination provided that a list of claims by AJ Lucas against the Gladstone entities arising in connection with the Construction Contract would survive the termination of the Construction Contract and provided a process for the resolution of those claims.

During the course of negotiations to settle the claims, a letter of offer was sent on behalf the Gladstone entities to AJ Lucas which attached a draft deed of settlement.  Representatives of the parties and their respective legal advisers then met on two subsequent occasions to negotiate the deed of settlement, and a final deed of settlement between the parties was prepared following those meetings.

The final deed of settlement provided that it was to be executed as a deed and that for AJ Lucas, execution was to be under section 127 of the Corporations Act 2001 (Cth), and for the Gladstone entities (which were governmental corporations), execution was to be by individual officeholders.

The final deed of settlement was faxed to Mr Campbell (chairman of directors and chief executive of AJ Lucas) who signed it and faxed it back to the legal representative of the Gladstone entities.  There was a discussion between the parties’ legal representatives about execution by AJ Lucas under section 127 with the arrangement being that the AJ Lucas company secretary would countersign the following Monday.  However, the deed of settlement was never formally executed as a deed or under section 127 by AJ Lucas before AJ Lucas sought to resile from the agreement as to the terms reached up to that time (by adding further terms).

In finding that there was a concluded contract between the parties (from which AJ Lucas could not resile), Jackson J in the Supreme Court of Queensland held that:

  • the appropriate characterisation of the facts was that the final deed of settlement was sent to Mr Campbell to sign and return as confirmation of acceptance on behalf of AJ Lucas of the agreement made that day.  That Mr Campbell would bind AJ Lucas was the very reason that the Gladstone entities had required Mr Campbell to be present at the first meeting in the first place.  Further, at the end of the first meeting, the expressed intentions of the parties was that they had reached an agreement which was then to be reduced to a final written form in the later meeting between the parties’ legal representatives;
  • Mr Campbell’s action in signing and returning the final deed of settlement with contemporaneous remarks on the fax coversheet of “herewith executed deed” and “original with me: - will send on Monday” was an acceptance of the Gladstone entities’ offer of contract on those terms.  There was nothing in the language that suggested that the signed final document was an offer by AJ Lucas to the Gladstone entities for the purposes of acceptance;
  • there was no evidence that the parties only intended to be bound on the exchange of executed counterparts of the final deed of settlement as a deed.  Nothing was said about an exchange of any counterparts in the original letter of offer.  It was open to AJ Lucas by Mr Campbell to accept the original letter of offer and since the offer had been made by email, Mr Campbell could respond accepting the offer by email.  Further, the history of prior contracts between the parties did not establish a course of dealing of contracts made only upon the exchange of counterparts or in the form of a deed.  In these circumstances, the fact that the Gladstone entities had proffered a draft deed to embody and reflect the offer did not mean that the offer was made on the footing that there would be no binding contract until there was an exchange of counterparts executed in the form of a deed; and
  • there was nothing inconsistent with the parties making arrangements for formal exchange the following Monday and the Gladstone entities’ claim that a concluded contract was reached, on the footing that this is a contract within the second class in Masters v Cameron.  In other words, the parties intended to make a contract by Mr Campbell signing and returning the final deed of settlement, notwithstanding that it was also intended that the deed of settlement would be executed in counterparts as a deed and those counterparts exchanged.  Accordingly, the arrangements for exchange did not have the effect that the parties were not to be bound upon Mr Campbell’s signature and return of the final document.
  • There was also a question as to the authority of Mr Grayson (the chief executed officer of Gladstone Area Water Board) to conclude a contract on behalf of the Gladstone entities.  Jackson J found that an email from the Gladstone entities’ lawyer to the effect that the Gladstone entities were of the view that a binding agreement was reached and were not prepared to entertain a further alteration after the fact (sent after the chief executive officers of the Gladstone entities had signed counterparts) operated as retrospective ratification of Mr Grayson’s authority as agent of the Gladstone entities.