HopgoodGanim Lawyers recently published an alert in relation to a decision of the Court of Appeal of Western Australia, which held that an email exchange between a tenant and a landlord’s agent amounted to an immediately binding agreement to lease and a licence. The Supreme Court of Queensland also has recently considered an agreement arising in similar circumstances.
In the recent case of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd  QSC 119, the Supreme Court of Queensland found that a chain of emails in the context at hand formed a binding contract for the sale of a roadhouse. It is a decision which has important commercial ramifications, particularly in the negotiation of a term sheet or heads of agreement, as the Court made this finding even though:
- the parties’ communications stated that they were subject to a signed contract;
- particular terms of the contract had not been agreed upon; and
- North Queensland Fuel Pty Ltd (NQF) argued that there was no sufficient written memorandum of the contract.
In this Alert, Partners Richard Gardiner and Nicole Radice, and Solicitor Matthew Jeffrey provide an outline and discuss the decision of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd.
The relevant facts were as follows:
- In late 2014 the owner of the Koah Roadhouse, located on the Kennedy Highway in North Queensland, appointed an agent to sell the freehold and the business. In October 2014 a representative of the plaintiffs inspected the roadhouse and indicated that the plaintiffs were interested in buying it, subject to certain due diligence.
- After the inspection there was some back and forth communications between NQF’s agent (the agent) and the plaintiffs, which culminated in the agent sending the plaintiffs’ representative an email on 30 October 2014 that listed out the terms on which NQF “would sign a contract” and attaching a draft contract of sale.
- On 31 October 2014 the agent and the plaintiffs’ representative had a further discussion in which the plaintiffs’ representative said that the contract would be generally on the terms of the agent’s email, with due diligence to be conducted. The agent asked for that offer to be put in writing. On the same day, the plaintiffs sent an email to the agent confirming their offer and stating:
“This offer is of course subject to contract and due diligence as previously discussed. We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out the necessary investigations.
I look forward to receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses” (the offer email).
- The agent responded by email stating that it accepted the offer which they understood to be “subject to execution of the Contract provided...minimal due diligence period and the provision of all information/reports etc...” (the acceptance email).
- On 3 November 2014 the plaintiffs’ solicitor sent a draft contract with annexures to the agent which:
- removed a special condition regarding a guarantee; and
- inserted two new conditions, being:
- a due diligence period which allowed the plaintiffs to conduct due diligence enquiries within 40 days of the contract date, and, if not satisfied, to bring the contact to an end; and
- environmental conditions which required the plaintiffs to do certain things and gave the plaintiffs the right in certain circumstances to rescind the contract.
- NQF was not comfortable with the amendments made to the contract and communicated that to the plaintiffs through the agent on 7 November 2014. At the same time, the agent also pointed out that NQF had entered into another contract for the sale of the roadhouse with another purchaser.
The plaintiffs argued that the email exchanges and conversations between the agent and the plaintiffs’ representative constituted a valid and binding agreement.
NQF denied that a contract was formed, arguing that:
- the offer email was not capable of unqualified acceptance as it was “subject to contract”;
- the acceptance email was not unqualified acceptance of the offer email;
- material terms were not agreed, including the guarantee requirements and due diligence period; and
- the parties did not manifest an intention to be legally bound.
NQF also argued that, if a contract was found to exist, there was no sufficient written memorandum or note to satisfy the requirements of section 59 of the Property Law Act 1974 (Qld) (PLA). In summary, section 59 provides that no action may be brought upon any contract for the sale of land unless the contract (or a memorandum or note of the contract) is in writing and signed by the party to be charged.
The Court applied the principles from the well known High Court decision of Masters v Cameron, which provides (in summary) that where parties reach agreement which is to be subject to a formal contract, the agreement may be characterised as one of the following:
- where the parties have reached finality as to all the terms and intend to be immediately bound, but propose to have the terms restated in a form which will be fuller or more precise but not different in effect;
- where the parties have completely agreed upon all the terms and intend no departure from or addition to that which their agreed terms express or imply, but have made performance of one or more of the terms conditional upon the execution of a formal document; and
- where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In this particular case, the Court agreed with the plaintiffs and found that there was a binding contract for the sale of the roadhouse. Although the agreement was expressed in informal terms, it had to be viewed against the broader context of the emails. Here, the broader context suggested that the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, while expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms (i.e. the first of the Masters v Cameron characterisations noted above).Although there was a reference in the acceptance email to “subject to execution of the contract...”, this was consistent with the parties having agreed on the essential terms with the intention that they would be formally recorded later.
In respect of NQF’s argument that there was no sufficient written memorandum or note to satisfy the requirements of the PLA, as there were a number of emails exchanged between the parties, the Court had regard to the provisions of the Electronic Transactions (Queensland) Act 2001 (Qld) (ETA).In particular, section 14 of the ETA provides that if a person’s signature is required under a Queensland law (which includes a law that provides consequences for the absence of a signature), that requirement is taken to be met for an electronic communication in certain circumstances.The Court considered that the evidence before it was sufficient to identify the person sending the acceptance email and their intention, such that the requirements of section 14 of the ETA were satisfied.Accordingly, NQF’s argument on this point failed.
This case serves as a reminder to anyone involved in the negotiation of contracts that email correspondence can lead to a binding agreement, even if the email refers to the negotiations as “subject to contract”, or similar wording. Parties need to ensure they clearly communicate their intention with respect to any proposed contract, including if it is their intention that no concluded bargain is to be reached unless and until a formal contract has been executed. Inconsistent language and actions by parties as to the characterisation of the negotiations may lead to a finding by a Court that a binding contract has been formed where such contract formation may be undesirable to one or more of the parties. This is a critical consideration in the negotiation of term sheets or heads of agreement by parties, which may occur before they seek legal advice to formally document transactions.
Additionally, given that a binding contract can be reached by the exchange of emails, it is important that any offer (or acceptance) clearly identifies any critical terms which are to be contained in the contract or agreement.
Finally, an appeal has been filed by NQF in respect of the decision, the outcome of which will be reported by HopgoodGanim Lawyers once any appeal decision has been delivered.