Laws2111 Lecture4a 2011

Certainty and Agreement

  • Objective approach – would the hypothetical reasonable person find it to be certain enough to suggest an intention for it to constitute a contract? (Quarante v The Owners Strata)
  • Need to be certain, not simple. A complex agreement can be very difficult to decipher BECAUSE it’s certain – inability for a layperson to understand does not preclude certainty.
  • Needs at least one meaning. Having 2 or 3 possible meanings does not necessarily make it void due to uncertainty, but having zero does.
  • Parties to contract need to be ascertainable as well – even if not necessarily specified by name (O'Halloran v Williamson)
  • Specific terms that are nonsense or inconsistent can be severed if unnecessary (Fitzgerald v Masters) but if a necessary clause is nonsense, it could be void due to uncertainty (Scammel v Ouston)
  • Legacy forms/terms can be relevant for some industries where latest standard forms in substantial numbers
  • All key issues need to be specified (Quarante v Owners)
  • Incompletely drafted professional terms may be filled in by previous dealings or contracts (Hillas v Arcos)
  • The court does not set out to destroy contracts – will sever or fill gaps if possible, but will not create a contract out of nothing (Kirby J)
  • Willing to fill in gaps where NECESSARY to give business efficacy – to stop people from reneging on their bargains
  • Sale of Goods Act (Qld) and Competition and Consumer Act (Cth) also fill in certain gaps via statutory guarantees.
  • To be void for uncertainty requires the omission of necessary terms without which the contract cannot be enforced (Thompson v White)
  • No such thing as “generally uncertain” arrangement – need to identify the specific term that is missing or uncertain
  • Court more willing to assume the continuation of pre-existing business arrangements when it comes to implying terms (Ormwave v Smith)
  • More/any important matters not agreed on during initial negotiations suggest there is no intention to be bound (Geebung)
  • More willing to accept a contract as certain if some machinery or system is in place to define it (eg. “reasonable rent” or “in the arbitrator’s view”)
  • Agreement to agree on key terms later is NOT VALID (May v Butcher) but simply defining key terms as “reasonable” MAY be sufficient to uphold, as can pre-existing prices/terms from past arrangements (Foley v Classique Coaches)

What isn’t uncertain?

  • Granting one party a choice in how they fulfil an agreement (Timmerman v Nervina)
  • Having a specified gap-filling machinery break down (the court can step in to fill the gaps themselves) (Sudbrook v Eggleton)
  • However if the gap filling would involve continued court intervention, it is much more likely to be void for uncertainty (Hall v Bust)

Good Faith

  • Traditionally no implied agreement to negotiation in good faith – ‘bargain model’ based on self-interested bargainers out to get the best of their opponents.
  • Only a duty to not make false or misleading statements – can keep information to yourself without concern (Walform Miles)
  • Some legal systems (most of Europe) do impose such a ‘good faith’ duty during negotiations
  • A contract TO negotiate in good faith CAN be binding, BUT must be clear enough to be enforceable (Coal Cliff)
  • Good Faith clauses in dispute resolution have been upheld (Aiton v Transfield) despite clause limits ultimately being unenforceable – suggesting an enforceable good faith clause would be valid.
  • Definition/Enforcement discussed in Stzelecki v Cable Sands (the ‘Good Faith’ clause in the ‘Memorandum of Understanding’) as “To act honestly within the framework of the bargain”
  • Eg. Be open-minded, attempt to resolve differences, listen to the other side, not simply rejecting their offers out of hand
  • The court does NOT examine the self-interest of the parties, only requires that the negotiations take place honestly.
  • Australian law gives effect to express obligations and obvious breaches (misrepresentation, estoppels, etc.) already.

Conditional Agreements – a condition can be a term or a factual event

1. Condition Precedent – must be satisfied before the contract comes into existence
2. Condition Subsequent – Binding contract is in place, but may be ended if a specific subsequent condition isn’t met
3. Condition Precedent to Performance – Contract is binding NOW, but performance will only be triggered by a condition later on.

Subject to contract

  • Can indicate an intention to NOT be bound until a formal document is signed (Masters v Cameron)

Types of Agreement (1-3 as set out in Masters v Cameron)

1. Immediately Binding (even before any documents drafted) (CBA v Dean)
2. Complete Agreement (with the completion of a written document merely one of the terms/conditions required for later performance) (Niesmann v Collingridge)
3. Agreement Pending Finalisation (Requires the completion and acceptance of a written document containing the terms already negotiated)
4. Binding, but only temporarily (Strzelecki introduced 4th category – a temporary contract that is only binding until the final one is completed, at which point it supersedes the temporary contract)

Subject to X (eg. Subject to Finance)

  • Always needs to be examined/interpreted in context
  • Eg. “subject to finance” is probably a condition subsequent, leading to a binding contract, but with a term allowing the buyer to terminate if they cannot find reasonable finance.
  • Note: Only the person getting finance can withdraw, and ONLY if reasonable finance is unavailable. They must make an attempt to obtain finance, but they are the ultimate arbiter of the ‘reasonableness’ of the terms (HC in Meehan v Jones)

Intention to Create Legal Relations

  • Particularly important in family and social agreements, as well as Government policy decisions, where the other indicia of a contract may be present, but there is no intention to actually be bound.
  • High Court cautions against ‘presumptions’ of intent shifting the onus of proof – it really depends on the circumstances (Ermogenous)

Learning Guide Cases

Fitzgerald v Masters
Relevant To: Certainty
Issue: Was one inconsistent/contradictory clause enough to make the contract uncertain?
Held: No – it was an irrelevant clause, the core agreement was sufficiently certain, so it could be severed.

Whitlock v Brew
Relevant To: Certainty
Issue: Was an agreement to lease ‘on reasonable terms as commonly govern such a case’ void for uncertainty?
Held: Yes it was – didn’t specify the tenure, the cost, or any of the key factors that would have had to be agreed on.

Quarante v The Owners Strata Plan
Relevant To: Certainty
Issue: Was a reimbursement conversation where they decided it would be a ‘good idea’ for Quarante to do the work and the Owners to reimburse them sufficiently certain to constitute a contract?
Held: No, it was not – did not discuss timeframe, costs, or contribution for costs. Additionally, post contractual conduct is admissible to determine if a contract had formed – if one party continued acting as though it had not, it’s a valid indicator.

Godecke v Kirwan
Relevant To: Certainty
Issue: Was a written agreement for a sale of land that provided it would execute a further agreement containing any reasonable terms the seller required void for uncertainty?
Held: No – a binding agreement had been made, it simply facilitated the addition of a secondary agreement containing objectively reasonable terms that were not inconsistent with the terms of primary contract. Merely offering a choice did not create uncertainty.

Coal Cliff Collieries v Sijehama
Relevant To: Certainty
Issue: Was a promise to consult together in good faith sufficiently certain?
Held: Not in this instance, as the agreement was too illusory and vague to be enforceable – but an agreement to negotiate in good faith COULD potentially be, depending on the nature and wording of the agreement.

*Strzelecki Holdings v Cable Sands
Relevant To: Certainty
Issue: Was a memorandum of understanding containing an agreement to negotiate in good faith sufficiently certain to be binding, and if so, did terminating negotiations breach it?
Held: Yes, there WAS a term requiring they negotiate in good faith – but it was not breached. It only required that they negotiate, keep an open mind, and attempt to resolve their differences – not that they actually agree. Held it WAS a binding contract, with the intention to be superseded by a later contract (adding a 4th class to Masters v Cameron)

*Masters v Cameron
Relevant To: Certainty in conditional ‘subject to….’ contracts
Issue: Did a term ‘subject to contract’ prevent the informal signed agreement from being valid prior to a formal contract being professional drafted?
Held: On the facts, it did – but there were 3 possible interpretations of the phrase depending on the facts/circumstances:
1. Immediately Binding (even before any documents drafted) (CBA v Dean)
2. Complete Agreement (with the completion of a written document merely one of the terms/conditions required for later performance) (Niesmann v Collingridge)
3. Agreement Pending Finalisation (Requires the completion and acceptance of a written document containing the terms already negotiated before being binding)

Commercial Bank of Australia v Dean
Relevant To: Certainty – ‘subject to contract’
Issue: Was a request to re-execute a deed with minor changes to conditions an unconditional agreement, or did it require re-execution and notification to take effect?
Held: Yes, it was immediately binding – they only wanted a ‘clean copy’ rather than the original amended version with an incorrect signature (company rather than individual). They had already agreed to all the terms.

Meehan v Jones
Relevant To: Certainty – effect of ‘subject to finance’
Issue: Was the condition that a contract was ‘subject to finance’ sufficient to make it void for uncertainty?
Held: No – the phrase required a reasonable effort be made to obtain finance, and that finance to be subjectively satisfactory to purchaser. It was sufficiently clear and certain to be a valid contractual term, and did not grant the seller the right to terminate the contract, only the purchaser.

*Ermogenous v Greek Orthodox Community of SA
Relevant To: Intention – status of ‘presumptions’
Issue: Was Archbishop Ermogenous a contractual employee of the church, or was the role of archbishop such that it was intended to be spiritual, and not a binding legal contract.
Held: Ermogenous was an employee – the court should be careful using general ‘presumptions’ about what type of arrangements are intended to be binding, and instead look at the circumstances and factual matrix of the specific case.

Balfour v Balfour E
Relevant To: Intention – domestic relations
Issue: Was a wife entitled to high level of support from her (now separated) husband that he had promised while they were still ‘happily’ married?
Held: Because they were still married at the time, there was no intention that it be binding. However Lord Atkin based this on a general presumption that domestic arrangements were no intended to be binding, which has since been overruled in Ermogenous

Todd v Nicol
Relevant To: Intention – family relations
Issue: Was a promise made to sister/neice that if they came to Australia to live with her, they’d be promised free rent/the house when she died intended to be legally binding?
Held: Yes, it was – the fact that she even went so far as to change her will was evidence that she was serious about it, and the hassle of selling up and moving to Australia was a sufficiently serious matter that it established an intention to enter into a legitimate, binding agreement. (That said, it was still held that they had breached the agreement through their behaviour, and ended up losing out)

Popiw v Popiw
Relevant To: Intention – family relations
Issue: Was a husband’s promise to transfer his house to their joint names if his wife returned intended to be legally binding?
Held: Yes, it was – the law would not have forced her to live with him, so her return constituted valid consideration, and the arrangement was not of a type ‘made in the ordinary course of a matrimonial relationship’, and they went so far as to visit the solicitor to begin arrangements. (That said, it ultimately failed because it wasn’t in writing, which was a statutory requirement for real property transfers)

Wakeling v Ripley
Relevant To: Intention – family relations
Issue: Was a brother’s promise to provide a home for his sibling’s family if they moved to Australia intended to be legally binding?
Held: Yes, it was – the serious nature of the decision to move internationally combined with the plaintiff negotiating assurances prior to moving was sufficient to create a binding contract.

*Riches v Hogben
Relevant To: Intention – family relations & estoppel – scope of remedy
Issue: Was a promise by an elderly woman to buy her son a house if he moved his family to Australia to live with and take care of her intended to be legally binding?
If so, to what extent could estoppels provide a remedy given that the promise was not in writing and as such not legally binding?
Held: Yes, it was intended to be binding – it was a serious agreement, and not a mere ‘family arrangement’. Because of the substantial detrimental reliance, equity could fulfil the agreement – but it required that the mother continue to be cared for, and permitted to continue living on the property in the ‘granny flat’.

The Satanita E
Relevant To: Third party contracts/intention in competitions
Issue: Was entry into a race on terms including accepting full liability for consequential loss binding between competitors?
Held: Yes – in addition to entering into a contract with the race organisers, the moment the other competitors departed led to a subsequent contract with them.

Trevey v Grubb
Relevant To: Intention – social arrangements
Issue: Was a lotto syndicate between friends a ‘contractual agreement’ to share the proceeds of a win?
Held: Yes, it was – there was a lot of money at stake, repeated behaviour, and statements about ‘more chance to win with more people’ suggesting an intention to split the proceeds of any such win.

Edwards v. Skyways E
Relevant To: Intention – effect of ‘ex gratia’
Issue: Was the classification of a redundancy payout as ‘ex gratia’ (made to avoid paying tax on a legally enforceable agreement) sufficient to make it non-contractual when they decided to back out on paying it?
Held: No – ‘ex gratia’ only means without liability – the promise to pay was still made in a business context, and only a few of the parties cared about the taxation issue – it was not specifically agreed upon by the parties that the promise NOT be legally binding.

Rose & Frank v. Crompton Bros. [1923] 2 K.B. 261 (“gentlemen’s agreements”) E
Relevant To: Intention – intention to exclude the law
Issue: Was a clause specifically stating that the agreement was a matter of honour and would not be subject to legal jurisdiction sufficient to prevent a contract from forming in circumstances that would otherwise have led to it?
Held: Yes – as long as the document clearly and specifically indicates a lack of intention to establish legal relations, it cannot be enforced contractually, in the same way circumstances that imply a lack of intention cannot be enforced.

Pirt Biotechnologies v Pirtferm
Relevant To: Intention – intention to NOT form a contract
Issue: Was a letter of intent stating ‘The parties at this stage do not seek a contractual obligation’ sufficient to prevent a contract from forming?
Held: Yes, but it had to be viewed in light of the surrounding factual matrix – not necessarily conclusive in and of itself.

Kleinwort Benson v Malaysia Mining Corp E
Relevant To: Intention – effect of ‘letter of comfort’
Issue: Was a letter of comfort from a parent company stating that it was their policy to ensure their subsidiary is in a position to meet its liability a contractual promise?
Held: No, it was merely a statement of fact/policy – not a promise.

Factory 5 v Victoria
Relevant To: Intention – post-agreement actions
Issue: Could post-agreement actions be used to evidence whether or not the parties intended to enter into a binding agreement?
Held: Yes, it can, but only if it is relevant/probative when looked at in context.

Australian Woollen Mills Pty. Ltd. v. Commonwealth (1954) 92 C.L.R. 424 (Government schemes)
Relevant To: Intention and Consideration – Government Policy
Issue: Was a policy scheme that promised subsidies to manufacturers who purchased Australia wool actually a unilateral contract?
Held: No – there was no intention to create legal relations, and the wool was merely a condition of obtaining the gifted subsidy, it did not constitute consideration for a promise.

Shahid v Australasian College of Dermatologists [2008] FCAFC 72 (education and commercial contracts)
Relevant To: Intention – education/commercial situations
Issue: Was the college a commercial organisation, and was there an intention that its appeal processes constitute a contract?
Held: Yes, the college earned substantial revenues through teaching and maintained commercial relationships with professionals. And as the appeal process was specifically set out, and required such a large fee, it suggested a very strong intention that the exchange of monetary consideration for a service would be legally binding.