FEDERAL COURT OF AUSTRALIA

Chan v Four C Realty Pty Ltd (in liq), in the matter of Four C Realty Pty Ltd (in liq) [2013] FCA 928

IN THE MATTER OF FOUR C REALTY PTY LTD (IN LIQUIDATION)

(ACN 130 296 909)

THE COURT ORDERS THAT:

1.    By 2:00 pm on 13 September 2013, the parties are directed to bring in orders to give effect to these reasons for judgment and to address the future management of the Interlocutory Process filed on 9 September 2013.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

IN THE MATTER OF FOUR C REALTY PTY LTD (IN LIQUIDATION)

(ACN 130 296 909)

REASONS FOR JUDGMENT

INTRODUCTION

1    This matter came on urgently for hearing on 11 September 2013.

2    The Applicant, Alice Chok Man Chan (Ms Chan), applied under ss 471B, 477(2B) and 477(6) of the Corporations Act 2001 (Cth) (the Act), inter alia, for a series of orders including a declaration that, on 13 August 2013, she and the First Respondent (Four C Realty) entered into a binding and enforceable contract for her to purchase the business assets of Four C Realty on identified terms and conditions. The Respondents disputed that contention. They submitted that no binding contract existed on 13 August 2013 and, alternatively, if a binding contract did exist, then Ms Chan was required to provide security for what has been described as “the indemnity”.

3    The parties agreed that the issue of whether there was a binding contract on 13 August 2013 and, if so, the terms of that contract should be heard and determined by the Court as a matter of urgency. In an attempt to limit the legal costs, the hearing proceeded immediately. In addition to the parties, Counsel representing Wenlyan Pty Ltd (Wenlyan) and Ms Isabelle Huang appeared at the hearing and made short submissions. Wenlyan and Ms Huang are shareholders in Four C Realty. Ms Chan is a director and also a shareholder of Four C Realty.

4    For the reasons that follow, there was a binding contract on 13 August 2013 for Ms Chan to purchase the business assets of Four C Realty on identified terms and conditions. Further, it was not a term or condition of that contract that Ms Chan would provide security for “the indemnity”.

FACTS

5    Four C Realty was incorporated on 25 March 2008 and carries on business as an estate agent from premises located at Suites 1316 and 1317, 401 Docklands Drive, Docklands. Four C Realty conducted a rent roll and acted as agent in the sale of residential properties, mainly in the Melbourne CBD and Docklands. Four C Realty also acts as the selling agent for a number of multi-story apartment developers whereby they facilitate off-the-plan sales to predominantly Chinese purchasers who are sourced through contacts of the shareholders of Four C Realty.

6    On 25 July 2013, the Second and Third Respondents, Mr Ross Blakeley and Mr Andrew Schwarz (together the Liquidators), were appointed joint and several liquidators of Four C Realty.

7    The Liquidators reviewed the asset and liability position of Four C Realty. A key asset was commission income due to Four C Realty from development contracts which had yet to settle. The Liquidators sought to determine the number of contracts and quantum of commissions due. As at 11 September 2013, the Liquidators expressed the view that there appeared to be approximately 58 contracts which are yet to settle. Those investigations are not complete. The Liquidators informed the Court that Four C Realty is typically paid half of the sales commission upon a purchaser entering into a contract of sale, with the balance payable when the contract is completed at settlement. There are corresponding obligations on Four C Realty to pay commissions to sales agents upon execution and settlement of those contracts of sale. Where a contract of sale does not settle, Four C Realty is liable to repay to developers the commission previously received. Accordingly, with some contracts due to settle between now and 2016, there is a possibility that Four C Realty will have to refund commissions up to 2016 in respect of any contracts which failed to complete.

8    By a letter dated 7 August 2013, the Liquidators announced an Expression of Interest (EOI) campaign for the sale of the business of Four C Realty. The letter stated, in part:

The role of the Liquidator is to collect, protect and realise [Four C Realty’s] assets. In realising the assets it is incumbent upon the Liquidator to obtain the best price in the circumstances.

Having regard to the circumstances it is my preliminary view … [that] the business in its current form would not be attractive to a third party independent purchaser. As such it is my intention to sell the business to one or more of the existing shareholders, should they be interested.

Accordingly, in order to provide each party with an opportunity to submit an offer I propose conducting an Expression of Interest (EOI) campaign.

In this regard, please find attached an EOI form for completion.

The timetable for the EOI campaign is as follows

•    7 August 2013 – Commencement of EOI.

•    8 August 2013, 5:00 pm – EOI period closes.

•    9 August 2013 – Offers reviewed by Liquidator.

•    12 August 2013 or earlier if possible – Notification of offers accepted or rejected.

Following communication to the successful party, it is my intention to complete a transaction as soon as possible.

It should be noted that pursuant to section 477(2A) of the Corporations Act 2001, the Liquidator may need to obtain creditor or court approval of any proposal that results in debts owed to [Four C Realty] being compromised.

9    A copy of that letter was sent to Ms Chan and Mr Ian Chen, a director of Four C Realty and – with Ms Lydia Boya Li – owner and controller of Wenlyan.

10    The EOI form, headed, “Expression of Interest to Acquire Assets and/or Business of the Company” was attached. It required a prospective purchaser to provide their name and contact details. It then invited the prospective purchaser to address the following matters:

Please detail your offer by providing the information requested below:

Assets I am interested in acquiring:

My offer for the above items is $____________________________

Liabilities I am willing to adopt as part of my offer:

Terms

Please detail below any other specific terms of your office [sic] including payment terms, finance requirements and other general terms of your offer:

…

The EOI form then required a signature and for the date to be inserted. The deadline for submitting offers was by 5:00 pm on 8 August 2013. The deadline was subsequently extended to 4:00 pm on 9 August 2013.

11    Ms Chan submitted her EOI on 9 August 2013. She offered to purchase all of the listed assets (except the domain name) and assume all of the listed liabilities for $510,000. Her offer included the following payment terms:

1.    50% of the purchase price payable anytime on request.

2.    The next 25% of the purchase price payable two weeks after the first payment.

3.    The last 25% of the purchase price payable two weeks after the second payment.

12    The same day, the Liquidators’ solicitor wrote to Ms Chan’s solicitor stating that the Liquidators were considering her offer and asked the following question:

We note that your client has offered a total sum of $510,000 to be paid over 4 weeks. Can you advise whether your client is prepared to provide security for the payment of that sum, and if so the nature of that security.

We also note that your client requires the production of Introducing Sales Agents agreements. Our client does not have possession of any such agreements and so cannot warrant that they will be provided. Please let us know whether your client would agree to a term that the Liquidators use their reasonable endeavours to provide them.

13    Ms Chan’s solicitor relevantly responded later that day:

1.    Our client’s offer was intended to include the purchase of the Domain Name (she neglected to tick the box). Please treat our client’s offer as inclusive of the Domain Name.

  2.    Our client otherwise varies the terms of her offer as follows:

(a)    The sum of $300,000 is payable on request.

(b)    The balance of $210,000 is payable 2 weeks thereafter.

(c)    Our client provides security over her property situated at 477 Waverley Road, Malvern East in respect of her payment obligations.

(d)    The liquidators use reasonable endeavours to provide the Introducing Sales Agents agreement.

I am seeking instructions in relation to the other matter you raised and will revert to you as soon as possible.

14    Approximately half an hour later, Ms Chan’s solicitor wrote again to the Liquidators’ solicitor stating:

I have now received further instructions in relation to the question of the refund of commissions that have already been paid to [Four C Realty].

I am instructed that my client is willing to further vary her offer to provide that she will indemnify [Four C Realty] in respect of commissions that [Four C Realty] is required to refund in respect of the development contracts that are yet to settle.

The emails referred to at [13] and [14] above will be collectively referred to as the Corrs’ emails. It is important to note that the later Corrs’ email did not refer to the earlier Corrs’ email.

15    Four days later, on 13 August 2013, the Liquidators wrote to Ms Chan as follows:

I refer to your Expression of Interest received on 9 August 2013, with emails from Corrs Chambers Westgarth dated 9 August 2013, to acquire [Four C Realty’s] business assets.

I confirm that your Expression of Interest submission and emails constitute an offer to purchase [Four C Realty’s] business assets.

I advise that the Liquidators accept your offer of $510,000 (Purchase Price) for [Four C Realty’s] business assets on the following terms:

You have agreed to purchase the following assets:

1.    Outstanding debtors (representing unpaid invoices at the date of the Liquidators’ appointment);

2.    Future commission income from development contacts [sic] which are yet to settle;

   3.    Rent roll (consisting of approximately 80 properties);

   4.    All [Four C Realty] owned plant and equipment: and

   5.    Company name and domain name.

You have agreed to assume and pay the following liabilities:

   1.    Employee entitlements of Ms Joyce Ying Zhao;

2.    Development commissions payable to introducing sales agents and/or any referral fees following the settlement of development contracts;

3.    Any outstanding lease costs of the two premises situated at 1316 and 1317, 401 Docklands Drive, Docklands (Premises).

You also wish to enter into a lease of the Premises and obtain a transfer of the existing telephone numbers operated by [Four C Realty].

You agree to pay the Purchase Price by two instalments, as follows:-

   (a)    $300,000 immediately; and

(b)    $210,000 payable within a further two weeks, namely no later than 28 August 2013.

Please make payment of the sum of $300,000 to the following account:

Account Name:     Four C Realty Pty Ltd (In Liquidation)

BSB:             […]

Account Number:     […]

You have agreed to provide security over your property at 477 Waverley Road, Malvern East in respect of your payment obligations.

Further, you have agreed to indemnify [Four C Realty] in respect of any commission which [Four C Realty] is required to refund in respect of development contracts that are yet to settle.

The Liquidators acceptance of your offer constitutes a binding and enforceable agreement. However, it is intended that these terms be more fully engrossed in a formal sale agreement.

The Liquidators will now advise Mr Yin Chen that his offer for the business has not been successful and will request that he deliver up all [Four C Realty] assets and books and records in his possession.

The Liquidators agree they will use their reasonable endeavours to provide you with the Introducing Sales Agents agreements.

Would you please contact this office as soon as possible to make an arrangement to meet with the Liquidators to discuss the possible transfer of the business.

In the meantime, the Liquidators will instruct their lawyers to draft a License Agreement to be entered into with you, in order that you may trade the business until settlement of the sale of [Four C Realty’s] business to you.

As indicated in my letter to you dated 7 August 2013, it may be necessary for the Liquidator to obtain creditor or court approval of the sale agreement.

(Emphasis added.)

This letter (the 13 August letter) was a central focus of the dispute between the parties. It will be necessary to return to consider the terms of the letter later in these reasons for judgment.

16    On 15 August 2013, Ms Chan’s solicitor wrote to the Liquidators’ solicitor stating:

We refer to your client’s letter dated 13 August 2013 and subsequent correspondence in relation to the contract for the sale of the business assets of [Four C Realty] to our client (Contract).

Our client remains ready, willing and able to comply with the terms of the Contract. She has, accordingly, taken steps to pay the sum of $300,000 to your client today.

On that same day, Ms Chan paid $300,000 to the Liquidators. On 28 and 30 August 2013, Ms Chan deposited further sums totalling $210,000. This represented the full purchase price.

ISSUES

17    As we have seen, the issues may be simply stated – was there a binding contract between Ms Chan and the Respondents and, if so, when was agreement reached and on what terms?

ANALYSIS

18    The first question is whether there was an agreement reached on 13 August 2013.

19    There are a number of matters to notice about the 13 August letter. First, as the opening paragraph of the letter makes clear, the Liquidators are responding to the EOI lodged by Ms Chan and “emails from Corrs Chambers Westgarth dated 9 August 2013”: see paragraph 1 at [15] above. I find that the emails referred to in paragraph 1 of the 13 August letter are the Corrs’ emails at [13] and [14] above.

20    Second, the Liquidators confirm that those documents (Ms Chan’s EOI and the Corrs’ emails) “constitute an offer to purchase [Four C Realty’s] business assets”. In other words, the matters addressed in those letters constitute an offer capable, or at least at that time treated by the Liquidators, as capable of acceptance. Indeed, the Liquidators stated that acceptance of the offer constituted a “binding and enforceable agreement” but that the terms would be “more fully engrossed in a formal sale agreement”. What then were the terms?

21    Third, the Liquidators confirmed they accepted the price offered of $510,000 on certain terms and conditions. Those terms and conditions included:

1.    The payment terms including identifying the account name and number into which the immediate payment of $300,000 was to be paid;

2.    A list of the assets to be acquired;

3.    A list of the liabilities to be assumed and paid;

4.    To provide security over an identified property “in respect of [the] payment obligations”; and

5.    To indemnify Four C Realty “in respect of any commission which [Four C Realty] is required to refund in respect of development contracts that are yet to settle.”

The lack of an essential term will see an agreement fail for a lack of completeness: see Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) Aust Contract Reports 90-059 at 90,328. There is no lack of any essential term in this case.

22    Is there a concluded agreement? The seminal authority is Masters v Cameron (1954) 91 CLR 353. There, the High Court stated (at 360):

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. 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.

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. Of these two cases the first is the more common.

23    A determination as to which of the three classes a particular agreement will fall into “depends upon the intention disclosed by the language the parties have employed”: Masters v Cameron at 362. That intention must be objectively ascertained from the terms of the relevant document or documents when read in light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638-639. As the High Court stated in Ermogenous v Greek Orthodox Community (2002) 209 CLR 95 at 105-106:

Because the search for the “intention to create contractual relations” requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word “intention”' is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.

(Citations omitted.)

24    As the factual and legal analysis makes plain, viewed objectively, the circumstances of this case fall squarely within the first class identified in Masters v Cameron. The parties intended to be immediately bound to the performance of the terms of their bargain but, at the same time, proposed to have the terms restated in a form which would be fuller or more precise but not different in effect. The express terms of the 13 August letter permit of no other conclusion.

25    The Liquidators relied upon two principal matters in contending that there was no binding contract on 13 August 2013. First, Counsel for the Liquidators submitted that the two paragraphs of the 13 August letter set out at [27] below were, in substance, a counter-offer and therefore no binding agreement was reached at all and, in particular, in relation to those two terms. The existence, timing and content of the Corrs’ emails and the Liquidators’ response (see [12]-[15] above) demonstrate that that submission fails on the facts. The 13 August letter referred to the Corrs’ emails and described those documents and the EOI as the “offer”, the “offer” which the Liquidators accepted.

26    The second matter relied upon by the Liquidators in contending that there was no binding contract on 13 August 2013 was that correspondence between the parties after 13 August 2013 demonstrated that the parties “continued to explore the breadth of the offer”. Contrary to the Liquidators’ submissions, there was no subsequent exploration of the offer, or its breadth. That exploration had occurred before 13 August 2013: see [12]-[14] above. The letter of 15 August 2013 does not support the Liquidators’ submission. Viewed objectively, Ms Chan’s letter of 15 August 2013 did no more than indicate that she remained ready, willing and able to comply with the terms of the “Contract”. For the reasons stated above, a binding agreement was reached between Ms Chan and Four C Realty on 13 August 2013.

27    The next question – concerning the precise terms of that agreement – is directed at the following two paragraphs of the 13 August letter:

You have agreed to provide security over your property at 477 Waverley Road, Malvern East in respect of your payment obligations.

Further, you have agreed to indemnify [Four C Realty] in respect of any commission which [Four C Realty] is required to refund in respect of development contracts that are yet to settle.

There is no dispute between the parties that Ms Chan agreed to provide security over the identified property “in respect of [her] payment obligations”. The Liquidators submitted that term of the contract also extended to Ms Chan being required to provide security for the indemnity referred to in the second paragraph.

28    I reject the Liquidators’ submissions. It is contrary to the express words of the 13 August letter which was the acceptance of the earlier offer recorded in the EOI and the Corrs’ emails. The documents must be read together. Viewed objectively, the structure and content of Corrs’ emails and the 13 August letter does not connect the two issues in the manner contended for by the Liquidators. Put another way, viewed objectively, the term of the contract by which Ms Chan agreed to provide security was separate, and independent, of the term of the contract by which Ms Chan agreed to provide the indemnity. Standing back, the correspondence records a meeting of the minds. The parties knew what was being offered and what was accepted. There was no misunderstanding.

29    The Liquidators, through Mr Schwarz, filed an affidavit at the hearing which was tendered. That affidavit recorded that the Liquidators ascertained that Four C Realty has received commission payments of approximately $688,303.00 for contracts of sale which have been executed but which are yet to settle with the following commission payments due in respect of those contracts:

1.    For contracts due to settle in 2013 - $563,063.00;

2.    For contracts due to settle in 2014 - $87,865.00;

3.    For contract due to settle in 2015 - $23,125.00; and

4.    For contracts due to settle in 2016 - $14,250.00.

A schedule of the identified commission payments due in respect of contracts yet to settle was annexed to Mr Schwarz’s affidavit.

30    If any contract fails to settle, the corresponding commission payment received by Four C Realty for that contract will become refundable to the developer. Four C Realty therefore has a contingent liability of $688,303.00. The Liquidators do not know how much of that liability will be realised until the final contract of sale is completed. Accordingly, Ms Chan’s obligation to indemnify Four C Realty will continue until the last contract of sale has settled.

31    Mr Schwarz’s affidavit also stated, in part:

For the reasons set out later in this affidavit, it was in the best interests of [Four C Realty] that a sale agreement contain terms to the effect that the purchaser would:

(a)    pay commissions payable by [Four C Realty] to introducing sales agents or any referral fees following the settlement of development contracts;

(b)    indemnify [Four C Realty] is [sic] respect of any commission which [Four C Realty] is required to refund in respect of development contracts that are yet to settle; and

   (c)    security for the contingent liabilities above.

Evidence of that candour is to be encouraged. The difficulty is that the 13 August 2013 agreement did not expressly, or impliedly, extend the provision of security to the indemnity: see [28] above.

32    For the sake of completeness, it should also be noted that whether the provision of the security by Ms Chan extended to the obligation to be responsible for payment of commissions payable by Four C Realty to introducing sales agents or any referral fees following the settlement of development contracts (the amount referred to in paragraph (a) at [31] above) was not the subject of submissions and is not addressed in these reasons for decision.

CONCLUSION

33    As noted at the outset, these reasons for judgment address the legal issues identified at [17] above. The parties are therefore directed to bring in orders to give effect to these reasons for judgment and to address the future management of the Interlocutory Process filed on 9 September 2013. One of the principal issues that remains to be addressed is s 477(2B) of the Act and the application of that section to this agreement.

Associate:

Dated:    13 September 2013