Can a contract to purchase real estate be formed by email?

  • Author : Bill Stark - 23-06-2015

Regular readers will recall that I recently posted about whether an agreement to lease can be formed by email (as examined in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21)? 
In reality, that case did nothing more than apply the existing law.
In Masters V Cameron (1954) 91 CLR 353, the High Court pointed out (at paragraph 9) that:

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 cases. 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. 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. 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. (at p360)

The High Court concluded that in each of the first two cases there is a binding contract:
… in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution.
In Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119, Justice Martin of the Supreme Court of Queensland was recently called on to determine whether a contract to purchase real estate can be formed by email?
The judgment was delivered on 15 May 2015.
The purchasers claimed that a contract for the sale of a freehold property and business was constituted by an email exchange between them and North Queensland Fuel Pty Ltd (NQF). NQF denied the claim, and argued that there was no intention to be legally bound by that exchange and, in any event, there was no sufficient written memorandum or note to satisfy s 59 of the Property Law Act 1974 (“PLA”).
Background Facts
NQF owned the Koah Roadhouse in far-north Queensland. NQF appointed an agent to sell the freehold and the business; in October 2014 the roadhouse was listed for sale.
On the 17th of October 2014, the plaintiff’s representative, Mr Hurry, attended the roadhouse for an inspection of the premises with NQF and the agent. During that inspection Mr Hurry said words to the following effect:
(a)   He represented United Petroleum and its associated entities;
(b)   He was interested in the roadhouse;
(c)    Any contract would be conditional on “due diligence”;
(d)   The contract would contain conditions relating to an environmental site assessment and a “tanks and lines” integrity test; and
(e)   He would need to see the “financials” for the business for the last two completed financial years.
During the inspection the agent provided a number of documents and financial records to Mr Hurry. In emails of 28 October 2014 the agent provided further records of the roadhouse “to assist with due diligence” including a profit and loss statement.
On 30 October 2014 there were telephone discussions between the agent and Mr Hurry. In those discussions Mr Hurry said that United Petroleum’s associated entities (the First and Second Plaintiffs) would be the buyers with separate contracts for the freehold and the business. Mr Beattie responded that NQF wanted a single contract. Mr Hurry said that he wanted to know the vendor’s terms so that he could get authority to make a formal offer.
On 30 October 2014, the agent sent an email to Mr Hurry stating that the vendors would sign a single contract (with a number of terms outlined). A draft contract of sale was attached to the email containing a special condition relating to a personal guarantee to be given by the directors of the purchaser.
On 31 October 2014 the agent and Mr Hurry had further telephone discussions. In those discussions Mr Hurry said that:
(a)   Although the first plaintiff would buy the subject land and the second plaintiff would buy the business, they agreed to the use of a single contract; and
(b)   The contract would be generally on the terms of the agent’s email of 30 October 2014, with due diligence including: environmental investigations, tank and line testing, and the outstanding “financials”.
The agent asked that this offer be put in writing.
At 4.24pm on 31 October 2014 Mr Hurry sent an email (“the offer email”) to the agent as follows:
Jay, further to our various discussions, I can confirm our offer of $1,600,000 for the business and freehold of the above property. As advised the freeholds are purchased by an entity related to the two Directors/Owners of United Petroleum, which in this case will be Stellard Pty Ltd.
This offer is of course subject to contract and due diligence as previously discussed. We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out the necessary investigations.
I look forward receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses.
Approximately 45 minutes later, the vendor sent an email (“the acceptance email”) to the agent and Mr Hurry in response to the offer email. It was copied to a solicitor, and other officers of the vendor. It contained the following:
Hi Jay and Martin,
We accept the below offer which we understand will be subject to execution of the Contract provided (with agreed amendments) on Monday, minimal due diligence period and the provision of all information/reports etc that are obtained by the purchaser during the due diligence period.
We look forward to progressing the matter further on Monday.
A few days later the vendor purported to pull out of the negotiations; it had apparently been dealing with another potential purchaser at the same time who made a better offer, and the vendor wished to deal with that purchaser instead.
Court’s analysis of the law
In the offer email these words are used: “This offer is of course subject to contract and due diligence as previously discussed.”
In the acceptance email the defendant says “We accept the below offer which we understand will be subject to execution of the Contract provided (with agreed amendments) on Monday ...” (emphasis added).
The court concluded (at paragraph 39):
The broader context of the two emails and the other expressions used in them strongly suggests that 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.
And at paragraph 41:
 The words used by the plaintiffs as to the effect of acceptance is clear from the closing words of the email:
“I look forward receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses.”
In concluding what had been agreed (at paragraph 53) the court noted that the parties had agreed:
        (a) What was to be sold;
        (b) The purchase price;
        (c) The deposit;
        (d) When stock was to be valued;
        (e) When the testing of tanks and lines was to occur;
        (f) The term of the due diligence period;
        (g) When settlement was to take place; and
        (h) Where it was to take place.
In the circumstances, the court held that there was a contract for the sale of the Koah Roadhouse.
The vendor argued that, if a contract was found to exist, then there is no sufficient writing to satisfy s 59 of the PLA (which is in similar terms to section 126 of the Instruments Act, 1958 (Vic).
Section 59 provides:
No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.
The vendor’s argument was directed to the operation of the Electronic Transactions (Queensland) Act 2001 (“ETQ Act”).
Section 14 of the ETQ Act provides:
 (1) If, under a State law, a person’s signature is required, the requirement is taken to have been met for an electronic communication if—
(a) a method is used to identify the person and to indicate the person’s intention in relation to the information communicated; and
(b) the method used was either—
(i) as reliable as appropriate for the purposes for which the electronic communication was generated or communicated, having regard to all the circumstances, including any relevant agreement; or
(ii) proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence; and
(c) the person to whom the signature is required to be given consents to the requirement being met by using the method mentioned in paragraph (a).
(2) The reference in subsection (1) to a law that requires a signature includes a reference to a law that provides consequences for the absence of a signature.”
The vendor put a very technical argument that the purchaser and it had not complied explicitly with the requirements of that Act, as therefore there could be no acceptance by email.
The court dismissed this argument and held:
In circumstances where parties have engaged in negotiation by email and, in particular, where an offer is made by email, then it is open to the court to infer that consent has been given by conduct of the other party.
This case confirms that:
(a)   When conducting negotiations, it is extremely important to be very clear about whether you intend to be bound by the result of the ongoing negotiations between the parties; and
(b)   The courts are (slowly) catching up with the reality of the way in which modern business transactions are being conducted in the real world.
In these modern times, it is not unusual for most, if not all communications in business to be conducted by email. This case confirms that such a transaction can be legally binding.
In my opinion, it will not be long before we have a case about an agreement for the lease or purchase of real estate that has been concluded by text message.
W G Stark
Hayden Starke Chambers
With assistance from Wilcox & Associates and Ross Eason
Posted by William Stark at 12:16 1 comment: 

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Bill Stark

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