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Client Update: How easy it is to be (legally) bound

7 April 2009

In brief: A recent decision of the Queensland Court of Appeal highlights how easily parties can bind themselves to an agreement for the sale of land, and the extent to which a court will read terms into the agreement to give effect to the parties' intentions. Partner Tony Davies (view CV) looks at the decision that provides a timely reminder of why caution must be exercised when negotiating the commercial terms of a sale, particularly where it is intended that negotiations are non-binding or subject to legal documentation being finalised.

The facts

In Moffatt Property Development Group P/L v Hebron Park P/L [2009] QCA 60, Moffatt, a property development company, wrote a letter to the real estate agent for Hebron Park, a land owner, making an unconditional offer to purchase a parcel of land. The letter specified, among other things, the purchase price, the deposit amount, that the contract was to be unconditional in the form of a Put & Call and that settlement was to be 12 months from the date of the contract.

Hebron Park signed the letter and returned a copy to Moffatt. However, on receiving a more favourable offer to purchase the land, Hebron Park asked Moffatt to 'let the deal go'. Moffatt refused, and brought an action for specific performance of the purported contract. Hebron Park argued (amongst other things) that the parties did not intend to be bound by the terms of the letter, and that the letter's terms were too uncertain to constitute an agreement.

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The decision

The appeal court, unanimously affirming the decision of first instance, held that the letter constituted a binding agreement for the sale of the land and ordered the parties to prepare and execute a Put & Call Option to document the sale.

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Intention to be bound

The court found that the parties intended to be bound to the transfer of the land by exchanging the letter because they both unconditionally signed and exchanged the letter. The letter's terms did not indicate that the Put and Call had to be signed before the parties were bound; the Put and Call would merely formalise the letter agreement's terms.

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Uncertain terms

The court rejected Hebron Park's argument that the letter was too loose and uncertain (for example, it did not specify the timing of completion, the timing of the deposit payment or the place of settlement). The lack of the more mechanical terms (eg timing of completion, GST treatment) was held not to be fatal to the existence of the contract. The letter set out a sufficient framework for the terms to be legally enforceable and, to the extent that there were missing terms or issues, there was an obligation on the parties to co-operate and act reasonably to work out any further necessary terms.

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PAMDA Non-Compliance

Hebron Park argued that non-compliance with the requirements of the Property Agents and Motor Dealers Act 2000 (Qld) (the PAMDA) demonstrated that the parties did not intend to be bound by the letter. The court rejected this argument and noted that failing to act in accordance with the PAMDA requirements does not suggest that the parties did not intend to create a legally binding agreement by signing the letter. The PAMDA compliance was, assumedly, something that would be worked out by the parties when effecting their agreement.

The court said:

this is not a case of the kind spoken of in the relevant provisions of the PAMDA where the contract is 'given to the buyer by the seller'. This is not a case of a sale of a residence to a consumer but of an acquisition of stock by a developer.

This is a confusing comment. Either the PAMDA applies or it does not apply. The PAMDA is concerned with, in general terms, the sale of residential land. It does not matter if the buyer is a consumer or developer. If the PAMDA does apply, it is hard to see how a party would be bound before the PAMDA is complied with. Assuming, as argued by Hebron Park, that the PAMDA does apply, we think the PAMDA issue might be a ground for further appeal.

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What does this decision mean?

Parties can be bound by an exchange of correspondence even when what may be considered important terms are not addressed.

Always consider, when making an offer to buy/sell, whether you intend to be bound before formal documents are signed. Make sure the offer expressly addresses that issue. A simple paragraph is all that it required.

If you have a query on this or any other Real Estate matter give us a call.

Published 7 April 2009

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