A case which highlights the critical distinction in characterising an agreement as a deed or a contract, and the importance of communication between parties regarding which form of instrument they intend, as well as their conduct in order to be bound.
400 George Street (Qld) Pty Ltd (400 George) were the owners and developers of an office high rise in Brisbane. They had entered into a Heads of Agreement with BG International Ltd (BG) to lease 4 floors, with a right of first refusal for a fifth. This document stated that ‘No legally binding agreement is made by this offer. All documentation is subject to a mutually agreed legal document by both parties’.
Five months later an Agreement for Lease was exchanged between the parties. The execution section of the Agreement for Lease stated it was ‘executed as a deed’ and that the signatory ‘signed, sealed and delivered’ the document. Another clause started with ‘by executing this deed’.
The fact that the document may have been deed as opposed to a contract, was fundamental. A deed is enforceable despite the lack of valuable consideration in the agreement, unlike a contract. Further, a party becomes legally bound by a deed when they themselves sign, seal, and deliver the document, in contrast to a contract which becomes binding when both parties execute.
This second distinction became very important in this case. The Agreement for Lease was sent to the intended lessee, BG, and executed and returned to 400 George. There were some delays with 400 George having all of its relevant signatories execute, and BG sought to withdraw their ‘offer to lease’, contending they were not yet bound as they had not been notified of 400 George’s acceptance. 400 George asserted the document was a deed that BG has signed, sealed and delivered and hence they were bound from that time.
At first instance
At trial Justice McMurdo placed much emphasis on the circumstances surrounding the negotiations, particularly the statement in the Heads of Agreement that All documentation is subject to a mutually agreed legal document by both parties. He found that despite the wording of the Agreement to Lease, the overall intention of the parties was that these documents should not be deeds, but were contracts that would only binding the parties when mutually agreed to. Therefore BG was entitled to withdraw when they did and were not bound by the Agreement to Lease. 400 George appealed the decision to the Court of Appeal.
The Court of Appeal also considered the overall intention of the parties. However, the Court found that the statements in the document: .. executed as a deed…. signed, sealed and delivered…..by executing this deed.., unequivocally expressed the intention that the document was a deed. Various circumstances suggesting the opposite intention could not overwhelm the strength of these statements. The Court was satisfied there were practical reasons for the parties to execute the document as a deed, and noted that when interpreting commercial documents the language of the parties requires attention.
Having found that the document was a deed, the Court turned its consideration to whether BG had become bound, that is, whether BG had signed, sealed and delivered the deed. Two points should be noted regarding the phrase ‘signed, sealed, and delivered’. Firstly, the Corporations Act 2001 contains provisions allowing a company to execute documents, including a deed, without a seal. Secondly ‘delivered’ does not describe physical delivery of the document, nor does execution alone constitute delivery. Rather, under the Property Law Act 1974 (Qld) it means ‘the intention to be legally bound either immediately or subject to fulfilment of a condition’. Hence what acts constitute delivery depends on the circumstances.
The court found that in these circumstances, BG had expressed its intention in the Heads of Agreement to be bound at the time there was a ‘mutually agreed legal document’. Therefore delivery had not occurred until 400 George mutually agreed by executing the documents. In addition, 400 George’s behaviour was not consistent with an intention that BG had been immediately bound. The Agreement to Lease contained requirements that BG obtain and deliver to another party a bond within a week of the ‘Agreement Date’. In the some 5-6 weeks from the time BG executed and returned the executed agreement this bond was neither provided nor requested by 400 George. This is a somewhat confusing situation as it meant that BG’s delivery of the deed was more dependent on the actions of 400 George rather the action of BG itself.
Ultimately BG were not legally bound at the time of their withdrawal, and were entitled to do so. Therefore, despite having successfully appealed on the point that the document was a deed, 400 George were unsuccessful in gaining a remedy against BG.
Points to consider
In this case there was uncertainty for the parties regarding the legal effects of their own, and each other’s actions. It stresses the importance of effective communication between parties and their legal representatives, and between the parties’ legal representatives themselves, when agreeing on the appropriate legal instrument with which to undertake commercial transactions.
More specifically, despite the non-binding nature of a subject to mutual agreement/ contract arrangement that may be in place, any variation from that agreement should be explicitly communicated. Ideally this communication should be in formal correspondence between the parties, as the form of the final document alone may not be enough to clearly specify the type of instrument, or how that instrument is intend to take effect.