In the matter of Capital Securities No. 1 Pty Ltd v Roger Saliba [2016] NSWSC 1093, the Supreme Court of NSW considered whether parties had reached a binding agreement to settle a dispute where terms had been agreed in email correspondence but not in a formal document, such as a deed.

Background

During 2014 and early 2015, negotiations occurred to resolve legal proceedings between Roger Saliba (Mr Saliba) and Tony Mitry and Linda Mitry (the Mitry’s). These negotiations continued by way of email until in or around November 2015 at which time Mr Saliba filed a Notice of Motion seeking a declaration that the parties had reached a settlement.

Legal Principles

The Court considered whether a binding contract came into existence and also the principles in Masters v Cameron [1954] HCA 74. There are several categories into which contractual negotiations fall in circumstances where parties have agreed on terms but also agreed that those terms will be dealt with by subsequent formal documentation. Those categories were described by the Court at 360:

(a) “[a case where] the parties have reached finality in arranging all the terms of the 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 difference in effect”;

(b) “… 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 documents”: and

(c) “[the case] in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract”.

The High Court held that in the first two categories there was a binding contract, but in the third there was not.

The Court said it was necessary to look at the intention of the parties which must be objectively ascertained from the terms of the document when read in light of the surrounding circumstances. In this case, the intention of the parties was ascertained by the words and phrases used in various email exchanges between the parties’ solicitors.

The Court considered that the words “Draft” and “For Consideration Only” in the heading of a Terms of Settlement document simply meant that an offer had been made for the consideration of the Mitry’s. Further, the document containing the terms of the offer was a “Draft” in the sense that it was open to the Mitry’s to propose amendments, and it allowed for typographical or drafting errors to be corrected. In the Court’s view, the use of these words was not inconsistent with an intention to enter into an immediately binding agreement.

The Mitry’s argued that because the Terms of Settlement document was headed “Draft – Without Prejudice – for Consideration Only“, the objective observer would conclude that there was no intention for the contract to be binding. They argued that the Court should conclude that this was an agreement which fell within the third category of Masters v Cameron, namely an agreement which is not binding unless and until a further formal document embodying the agreement comes into being and is signed.

After a series of emails which were exchanged between the solicitors over time, the Court was of the view that a response by the solicitor for Mr Saliba indicated that Mr Saliba had accepted a counter-offer because Terms of Settlement were prepared, signed by Mr Saliba in his own capacity and on behalf of his company, and forwarded to the Mitrys’ solicitor. Further, the contents of the Terms of Settlement were clear and unambiguous, and they were contained in a document which, had the Mitry’s signed it, would have constituted a binding agreement. The document reflected the end result of negotiations which has been ongoing for some time, and reflected the terms of the agreement reached between the parties’ solicitors.

The Court found that the agreement reached was not one that falls into any of the Masters v Cameron categories. Rather, the agreement was reached through the making of an offer by Mr Saliba and the acceptance of that offer by the Mitry’s or, alternatively, by the making of a counter-offer by the Mitrys and the acceptance of that counter-offer by Mr Saliba. In these circumstances, the Court was of the view that an immediately binding agreement to settle the proceedings was reached by the exchange of emails and attached documents.

Outcome

Ultimately, the Court was satisfied that a binding agreement had been reached between the parties. This decision should serve as a warning to be careful during settlement negotiations of any kind if you do not wish to inadvertently become bound to unwanted terms of settlement.

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