In Nergl Developments Pty Ltd v Vella  NSWCA 131, the NSW Court of Appeal was required to determine whether a heads of agreement entered into following a mediation provided a binding pathway to a final settlement of the underlying dispute.
In essence, the central disagreement related whether the heads of agreement contained:
- the full settlement terms, such that the parties were bound to enter into a subsequent formal deed embodying the terms of settlement. Nergl Developments sought this outcome; or
- preconditions requiring the performance of other obligations that, if not satisfied, meant that a subsequent formal settlement deed need not be entered into. This was the interpretation preferred by Ms Vella.
Each party sought specific performance of the heads of agreement based upon its preferred interpretation. The trial judge found in favour of Ms Vella. Nergl Developments appealed and contended that aspects of the heads of agreement indicated that the parties were bound to enter into a formal deed based upon the terms of the heads of agreement.
This argument was rejected by the NSW Court of Appeal. The heads of agreement contained additional obligations that involved further transactions as a precondition of subsequently entering into a binding settlement deed. Relevantly, the transactions needed to give effect to a settlement were sufficiently described in the heads of agreement. In these circumstances the heads of agreement fell into the second category of Masters v Cameron agreements. This category includes agreements “in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless had made performance of one or more of the terms conditional upon the execution of a formal document.”
The application of the second category of agreements was elaborated upon by Justice Basten. His Honour observed that merely because an agreement fell into the second category of Masters v Cameron agreements did not mean that a single formal document was required which restated all of the terms of the heads of agreement. Rather, the parties were required to perform a number of further obligations and transactions pursuant to the heads of agreement, after which a formal settlement deed would be entered into. As those obligations and transactions were not completed, there was no binding agreement to enter into a final settlement deed.