Background

Mr Koon Wong (the Applicant) commenced proceedings against the bankrupt estate of his estranged daughter, Ms Mei Wong, relating to a property that he and Ms Wong owned as tenants in common in NSW.   Ms Wong’s trustee in bankruptcy (the Trustee) defended the proceedings.

Offer

On 29 July 2021, the Applicant’s solicitor sent a letter to the Trustee proposing to settle on the following terms (the Offer):

• the property be sold as soon as possible under the instruction of the Applicant;
• the Trustee be paid from the net proceeds of sale a sum estimated to be approximately $220,000; and
• the balance of the net proceeds of sale be paid to the Applicant.

Acceptance…

On 2 August 2021 the solicitor for the Trustee responded, accepting the Offer and paraphrasing the terms of the Offer as follows:

• the property is to be sold as soon as possible under the Applicant’s instructions;
• the amount of $220,000 will be paid to the Bankrupt Estate from the net proceeds of sale; and
• the balance of the net proceeds of sale will be retained by the Applicant.

The Trustee’s solicitor also stated that a draft deed of settlement would “be sent to you for review shortly” (the Draft Settlement Deed), even though the Offer had been silent about a deed.

 On 3 August 2021, the Trustee’s solicitor sent the Draft Settlement Deed to the Applicant’s solicitor, which not only included the terms referred to above, but also added additional terms, such as that the property would be transferred in its entirety to the Applicant, a requirement that the Applicant indemnify the Trustee against any taxes payable on the transfer, and full releases.   Of particular significance was the fact that the Trustee’s acceptance of the Offer was not made conditional upon the parties executing a deed.   Further, when the Draft Settlement Deed was provided, the Trustee’s solicitor had expressly invited the Applicant’s solicitor to advise of any changes that he was instructed to request.

… Or not?

The Applicant rejected the Draft Settlement Deed and by email dated 11 August 2021 the Applicant’s solicitor asserted that the Draft Settlement Deed constituted a counter offer which the Applicant did not accept.  The Applicant’s solicitor went one step further and stated that the Applicant’ Offer was no longer open for acceptance.  Unsurprisingly, the Trustee did not accept that the Offer was capable of being withdrawn and maintained that a binding agreement had been concluded, when the Trustee’s solicitor had accepted the Offer on 2 August 2021.

Legal principles

At paragraphs 27 – 39 of the judgment, the Court restated the principles governing whether parties have entered into a binding and enforceable agreement, including by noting that:

• the law is not concerned with parties’ subjective intentions, or what they may have subjectively thought had been agreed;
• the law is only concerned with ascertaining the objective intention of the parties, which is determined by reference to what a reasonable person would have understood from the other party’s words and conduct;
• in determining whether a contract has been formed, it is not necessary to identify a precise offer or acceptance, nor a precise time at which an offer or acceptance can be identified;
• rather, the question is to be answered by asking what a reasonable person in the position of the parties would think as to whether there was a concluded bargain; and
• whether a communication accepts the terms of an offer without modification, or instead varies its terms, is a question of construction.

The Court’s decision

The Court found that a binding agreement was formed when the Trustee accepted the Offer on 2 August 2021, even though in its response the Trustee had made reference to a draft deed of settlement that would be provided separately.

The Court determined that an agreement had been formed for the following reasons:

1. The first and third terms of the Offer were accepted by the Trustee without qualification. The acceptance of the second term included a difference that was not material (i.e. a fixed sum of $220,000, rather than an “approximate” sum of $220,000) and did not change the substance of the agreement. The Court considered the reasonable person would not view the difference as introducing a new term which would result in a counter offer.
2. The Offer was expressed as operating as a Calderbank letter, meaning that the Applicant intended to rely on the Offer on the question of costs, if it was not accepted.  This ran counter to a submission made by the Applicant at the hearing that the Offer was conditional upon him obtaining consent from third parties.
3. The Trustee’s acceptance of the Offer was not made conditional upon the parties entering into the Draft Settlement Deed in the terms propounded by the Trustee.   The Draft Settlement Deed did not materially vary the terms of the agreement and simply addressed matters that sought to give effect to, or were otherwise incidental to, the agreed terms.

The Court found that as the Applicant had rejected the Draft Settlement Deed, when it was presented on 3 August 2021, the parties were left with a binding agreement that was recorded by the exchange of emails dated 29 July and 2 August 2021.

The case demonstrates the importance of stating an offer in definitive terms and that if a party wishes to make acceptance of a settlement offer conditional upon the execution of a formal deed or agreement, this should be made clear from the beginning.

Otherwise, parties may find themselves immediately bound by an agreement without having agreed to additional terms in formal documentation.