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Have you agreed to agree?    Sully v Englisch [2022] VSCA 184

In this judgment in the Court of Appeal of the Supreme Court of Victoria, the court considered whether an agreement reached at a mediation to settle a court proceeding was immediately binding in circumstances where the parties could not subsequently agree on the written terms of the settlement.

In summary, the court found that an agreement reached at a mediation to settle a court proceeding which was to be documented could be held to be binding even where the parties subsequently fail to reach an agreement on additional terms.

Background

The background facts of this case are that Ms Sully entered into a contract to purchase land conditional upon her obtaining finance.  Mr Englisch acted as an estate agent for the vendor.   Ms Sully terminated the contract due to her inability to obtain finance.

Ms Sully was sued by the vendor who contended that Ms Sully did not accept reasonable offers to finance the purchase of the land.  After judgment was entered in favour of the vendor against Ms Sully, she subsequently settled with the vendor for a reduced sum.

Ms Sully then commenced a proceeding in VCAT seeking damages against Mr Englisch for misleading and deceptive conduct. She alleged that Mr Englisch had made representations to her concerning her ability to end the contract of sale in the event that she was unable to obtain finance.   VCAT found in favour of Ms Sully and ordered Mr Englisch to pay her damages.  Mr Englisch then sought to appeal the VCAT decision in the Supreme Court of Victoria.

Ms Sully and Mr Englisch attended a judicial mediation in the Supreme Court at which they agreed upon terms to settle the proceeding and that the formal settlement documents would be drawn up after the mediation.  However, the parties were unable to reach agreement as to the terms of the formal settlement documents and, as such, the question brought before the court was whether the agreement reached at the mediation was binding notwithstanding that the parties were not able to subsequently reach agreement as to the terms of the formal settlement documents.

At first instance, the question of whether the parties entered into a binding agreement at the mediation was determined by a trial judge who found that there was insufficient evidence to determine whether the parties had reached an agreement at the mediation.

Ms Sully appealed this decision to the Court of Appeal.  Under the principles set out by the High Court in Masters v Cameron, there are three categories of contracts where the parties have reached an agreement but intend to enter into a formal agreement at a later time in respect of that prior agreement. They are:

(a)   the parties intend to be bound immediately, though expressing a desire to draw up their agreement in a more formal document at a later stage, in which case they are bound by the initial agreement even if no subsequent formal contract is executed;

(b)   the parties intend to be bound immediately, but may wish the operation of a particular clause or term to be delayed pending the drawing up of a more formal document, again in which case they are bound by the initial agreement even if no subsequent formal contract is executed; or

(c)   the parties intend to postpone the creation of contractual relations until a formal contract is drawn up and executed, in which case they will not be bound unless and until that subsequent formal contract is executed.

Since Masters v Cameron was decided, Courts have recognised a fourth category – being where the parties intend to be bound immediately by terms which they have agreed upon, whilst ‘expecting’ to make a further contract in substitution for the first contract containing, by consent, additional terms.

An agreement to agree can be binding

The question, then, whether an agreement reached with an expectation that it will subsequently be the subject of a formal contract is intended to be immediately binding, falls to be determined objectively, having regard to the presumed or inferred intention of the parties.

In this case, the Court of Appeal found that the parties had reached a binding agreement at the mediation.  In the leading judgment, Walker JA stated that the matter was finely balanced and that there were factors pointing in both directions but, in his opinion, a reasonable person observing the mediation would have concluded that, by the end of the mediation, the parties had made a binding agreement.

The key points from the judgment are that:

• the terms of the agreement reached at the mediation were not complex or sufficiently important so that a lengthy written contract was required;
• there was agreement on the key terms, leaving only the machinery to be worked out;
• the court can consider common practice but there would need to be evidence that the parties had adhered to the common practice; and    
• The court can consider post-contractual conduct as the dispute related to the formation of the agreement, but in this case, it was inconclusive.

Key take away

It seems that to avoid any uncertainty regarding the terms of any settlement at mediation or, for that matter, any agreement that is to be subject to the parties subsequent signing a formal contract with potentially additional terms, it is prudent for the parties to acknowledge at the outset that there is no binding agreement unless and until the terms of the ‘in principle’ agreement are reduced to writing and signed by all of the parties.