When is a deed a deed?
PDF DOWNLOADThe recent decision of the Queensland Court of Appeal in 400 George Street (Qld) Pty Limited v BG International Limited has highlighted the need for parties to clearly determine when they will become legally bound by a document and to consider closely the formalities associated with the use of deeds. In particular, it is important that parties establish with certainty when a contract will come into effect where negotiations have commenced with a letter of offer, heads of agreement or other document expressed to be “subject to contract”.
Facts
The respondent was a prospective tenant in a building to be developed by the appellants. The parties negotiated a document that was titled “agreement for lease” (AFL). Before the documents were executed, a letter of offer was sent by the respondents which contained a special condition stipulating that no binding agreement was made by the letter of offer and all documentation was subject to a mutually agreed legal document by the parties.
Negotiations between the parties and their solicitors ensued over the next six months to finalise the form of the AFL. The finalised form of AFL was executed and returned by the respondent to the appellants. Subsequently, the respondent purported to withdraw from the deal after a delay in the execution of the AFL by one of the appellants. Although the AFL had not been executed by each of the appellants, the appellants maintained that the respondent was legally bound by the AFL and commenced proceedings.
At trial
The appellants commenced proceedings in the Supreme Court of Queensland seeking a declaration that the respondent was bound by the AFL on the basis the AFL was a deed. In particular, the appellants argued the AFL became immediately binding on the respondent because the AFL had been “signed, sealed and delivered” by its execution on the signing clause headed “Executed as a deed” and its unqualified return.
The legal position is that once a deed has been “signed, sealed and delivered” by a party, and provided that there are no conditions on the “delivery” of the deed, that party is bound by the deed.
The respondent argued that the AFL was not in fact a deed and that the respondent was not bound by the AFL, relying heavily on the “subject to contract” provision contained in the letter of offer signed some six months earlier.
The trial judge accepted the respondent’s argument that the AFL was not a deed. In short, his Honour held that the non-binding letter of offer was evidence that the parties intended that they would not be legally bound until a mutually agreed and executed formal document was in place, and nothing in the intervening correspondence or the AFL had altered that position.
Court of Appeal – the AFL was a deed but was not delivered
The Court of Appeal held that the words “Executed as a deed” and “By executing this deed”, in the AFL, were clear indications that the parties intended for the AFL to be a deed.
However, the Court of Appeal held that the document had not been “delivered” by the respondent, because the letter of offer “signified an understanding that the parties would not be bound until such time as a bargain was recorded in the formal document agreed by the parties…” (Muir J). Accordingly, until the bargain was recorded in a document which was binding on all parties, there was no “delivery” by the respondent and the respondent was not bound by the AFL.
Key Contacts
Melbourne
Michael Linehan
Partner
T: +61 (0)3 9321 9807
E:
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Sydney
David Walker
Partner
T: +61 (0)2 8083 0446
E:
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Brisbane
Philip Vickery
Partner
T: +61 (0)7 3135 0632
E:
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