Pacific Premium Funding v Sierra Holdings [2004] NSWSC 713

The Plaintiff (Pacific) was owed money by a company associated with Mr David Fairfull (IOF). Pacific had served a statutory demand on that company and was in a position to wind it up. Mr Fairfull did not want that to happen. He negotiated an agreement with Pacific that, in exchange for security to be given by the defendant (“Sierra”- another company controlled by Mr Fairfull) and other matters, Pacific would stay its hand for a number of months. The agreement was recorded in a number of documents, including a deed of settlement and a mortgage to be given by Sierra to Pacific. Mr Fairfull signed those documents in his own right and on behalf of Sierra and others. He sent copies of the signed documents by facsimile transmission to Pacific’s solicitors. Pacific says that the documents thereby became binding and that it is entitled to enforce the mortgage that, under the terms of the deed of settlement, Sierra agreed to give. Sierra says that the documents did not become binding upon it, and that they were not intended to become binding until there was a formal exchange. Stripped to its essentials, the question for decision is whether someone who has obtained the substantial benefit of an agreement negotiated in good faith is bound to pay the price. Resolution of that question requires close attention to the facts and documents.

The issues

Pacific by its amended summons sought specific performance of the deed of settlement, requiring Sierra to execute a mortgage over the relevant land and deliver that mortgage to Pacific. It sought judgment in the settlement sum of $192,346.30; an order that the money paid into court be paid out to it together with interest; or, in the alternative, damages for breach of contract in the amount paid into court.

Pacific’s case was put three ways. It said:

  1. There was a complete agreement made no later than 1 April 2004, when Mr Fairfull and Ms Good (Pacific’s solicitor from Brand Partners) had negotiated all the terms of the agreement that was later recorded (with the exception of the payment of $17,000 up front) in the deed of settlement and that that agreement was intended to be immediately binding.
  2. Alternatively, a binding agreement came into effect when Mr Fairfull signed the deed of settlement, mortgage and other documents and sent them by facsimile transmission to Brand Partners.
  3. Alternatively, Sierra is estopped from denying that a binding agreement came into force by those means on 19 April 2004.

Sierra submitted that the case for Pacific was founded on the deed of settlement and that it was not open to Pacific to rely on a case formulated in either the first or the third way set out above. It submitted that no binding agreement came into effect until the deed of settlement was executed under seal by all parties and delivered. It submitted, further, that in this case delivery would not be effected simply because (for example) Mr Fairfull sent copies of some documents by facsimile transmission to Brand Partners, or sent the original signed documents to Holding Redlich; Sierra submitted that no binding contract would come into existence until there had been an exchange of contracts. As to this point, Sierra submitted that it was appropriate to take into account the subjective understanding of the parties. Alternatively, Sierra submitted, any agreement that had been concluded (so as to become legally binding) had been repudiated when, on 17 May 2004, Brand Partners threatened to institute winding-up proceedings “without further notice” if the original mortgage documents were not received by 5 pm, 18 May 2004; and that this repudiation had been accepted, so as to bring to an end any legally binding agreement. Finally, Sierra submitted, the deed of settlement had not been stamped as a mortgage and was therefore not enforceable as a mortgage (Duties Act 1997, s 211(1)).

Mr Fairfull’s credit

Mr Fairfull said in his affidavit and at times in his cross-examination that, in substance, it was at all material times his understanding and belief that nothing would become binding upon him and his companies unless and until there was a formal exchange of signed documents.

Mr Fairfull referred to his experience in business over a number of years during which, he said, he had been involved in a number of transactions where exchange of contracts was the means by which the parties entered into legally binding relations. He said that he understood that, in sending the signed documents to Brand Partners, he was merely giving them “a sign of my good faith at that time, to show that I was not delaying matters and was then still intending to proceed towards settlement of this transaction …” (affidavit sworn 18 June 2004, para 26).

The Court did not accept Mr Fairfull’s evidence as to his belief or understanding in relation to this transaction. By his own account, he was behaving in an underhand and dishonest way towards Pacific. He was prepared to take the benefit of the agreement that, as he agreed, he had negotiated whilst at the same time reserving to himself (without communicating a hint to his own solicitor, let alone Pacific) the right not to tender performance in exchange. He was prepared to put his own solicitor into an untenable position, and must have appreciated that he was doing so.

The relevant principles

Pacific, contended that by 1 April 2004 the parties had settled upon all the terms of their bargain, and that they intended that their bargain should become immediately binding upon them. He said that the case fell within either the first or second of the categories identified in Masters v Cameron (1954) 91 CLR 353.

The parties in their submissions referred to the well known formulation of Dixon CJ and McTiernan and Kitto JJ in Masters at 360. Their Honours referred to three categories of circumstances that might exist when parties had concluded negotiations but intended that there should be a formal contract. In two categories, their Honours said, the parties were bound immediately. In the third category, they were not. Their Honours said:
“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes.

  1. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.
  2. Or, secondly, it may be a case 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 have made performance of one or more of the terms conditional upon the execution of a formal document.
  3. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract”.
  4. There is also a fourth class of case, additional to those three, (see Sinclair, Scott & Co v Naughton (1929) 43 CLR 310, 317) where the parties were immediately bound: 
     “… one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”.

The decisive issue is one of objective intention which is to be resolved objectively and as a matter of construction of the relevant documents.

In searching for the intention of the parties, it is important to bear in mind the approach that the court should avoid a narrow or pedantic approach… particularly in the case of commercial arrangements.

Complete agreement reached by 1 April 2004

It was clear that by 1 April 2004, Ms Good and Mr Fairfull had negotiated the essential terms of the agreement that was subsequently documented in the deed of settlement. Neither the further enquiries that were made, nor the drafting changes that were made to the documentation, demonstrate that the agreement had not been fully negotiated.

Was the oral agreement intended to be legally binding?

The Court did not think that the parties intended to be bound by the oral agreement that was concluded between Ms Good and Mr Fairfull.

  1. Mr Fairfull had not had, but would obviously require, legal advice upon the documentation that was propounded in pursuance of the negotiations. It could hardly be suggested that he would be bound to whatever documents Pacific’s solicitors might produce.
  2. The agreement involved the giving of a mortgage over real property. Pacific by its solicitors would know, even if Mr Fairfull did not appreciate, that a mortgage should be in writing, and that there were requirements of form to be satisfied.
  3. The need for the parties to satisfy themselves of matters such as the value of the property, the amount secured by the first mortgage, the terms of the trust deed and the amount claimed by Pacific, indicate that the agreement was “in principle” only.
  4.  A suggestion that the oral negotiations produced a concluded and legally binding agreement is inconsistent with the correspondence and conduct of the parties thereafter.

Was a binding agreement made on 19 April 2004?

Sierra submitted that the parties intended that legally binding relations should come into existence only on formal exchange of signed documents. Pacific submitted that the settlement deed and mortgage became binding on Sierra when Mr Fairfull, having signed them on its behalf as sole director, sent them by facsimile transmission to Brand Partners.

In support of, or as a development of, its submission as to the necessity for exchange, Sierra pointed to the fact that the parties had chosen to record their agreement in the form of a “deed”. It referred to Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361. In that case, Young J traced the history of deeds. He referred to it as the common law’s “particular ritual, act or instrument by which a person can notify the community that he most solemnly means what he is doing as being binding on him”

There was no doubt that the execution of the deed of settlement by Mr Fairfull personally, and by him for Sierra, was capable of fulfilling the relevant requirements for execution of a document as a deed. In his case, the document was expressed to be signed, sealed and delivered; and it was signed by him in the presence of a witness: Conveyancing Act 1919 (NSW), s 38. In Sierra’s case, the document was signed by its sole director: Corporations Act 2001, s 127.

The question was, therefore, whether the documents were “delivered” when Mr Fairfull sent them (or copies of them) by facsimile transmission to Brand Partners. The Court found they were. Whether delivery has occurred is a question of fact, to be resolved by reference to the intention of the person said to have delivered it.

If the parties’ intention was that an agreement in terms of the deed should come into existence when it was signed (and delivered), and that exchange was not necessary, then Mr Fairfull’s act in sending copies of the documents by facsimile transmission to Brand Partners could hardly have been intended to achieve anything else than show them, and through them the plaintiff, that he and Sierra “had executed the document as their deed presently binding on them”.

The Court found that the intention of the parties was that the documents should be become binding upon execution and not only upon formal exchange.

The deed of settlement required the mortgage to be given “upon signing”. If there were a legally binding contract in existence on the terms of the deed of settlement as at 17 May 2004, Sierra was in breach of that contract because it had not provided the signed mortgage; and calling for delivery of the signed mortgage was no more than calling for performance of the contract.

There was, however, a more significant point. There was no evidence that Sierra (or any other of the IOF Parties) purported to accept what was alleged to be repudiatory conduct on the part of Pacific as discharging the contract that, allegedly, was repudiated. The very next day, Pacific indicated its intention to enforce the deed of settlement if Sierra did not perform.

Conclusion

Pacific made out its entitlement to an equitable mortgage in accordance with the deed of settlement. It was agreed that any rights that Pacific may have had as lender attached to the money held in Court. Pacific was therefore entitled to the relief that it seeks in relation to that money. Further, because the mortgage was effective in equity, it was entitled to judgment against Sierra for the principal sum secured.

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