Assignment Answer Comments
This assignment was worth 20% of the students’ final mark. The skill focused on was
case law problem solving involving reasoning through the cases to find relevant facts
in the problem and assessing the operation of contract law principles to those facts.
Arguments and analysis should come from the cases. Each answer should raise the
relevant issues, the relevant principles, apply those principles to the facts and draw a
conclusion. The marks for this question were based on how students put all the
issues together and provided a concise, precise and clear piece of advice.
The question was a formation question based around an appalling Heads of
Agreement. The main legal issue was to determine whether this heads of agreement
was an enforceable contract. Students were expected to state clearly what were the
requirements for an enforceable contract and what aspects of those requirements
were relevant to the question.
A very good answer in terms of structure would not have run through the terms on a
clause by clause basis drawing a conclusion on each clause as the principles of
formation depend on how a clause operates by reference to all the other clauses.
The document must be construed as a whole. However, each clause did raise issues
and the most important were as follows:
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A major point is that the document commenced with a statement that it
represented the conclusion of negotiations which sounds final, indeed when
read with clause 1 is does look final. Clearly though the sale was not to follow
immediately given the other terms of the document and this takes you to
clause 8 which suggests it is final and intended to be binding as an agreement
to negotiate. It could have then followed that there was a contract but it might
have to satisfy not merely the text book requirements of formation but also
those put forward by Kirby P in Coal Cliff. An answer could have been
structured totally along these lines and then consider all the clauses in relation
to that test, that is, ‘are negotiations sufficiently well advanced’ and is a
dispute resolution clause needed should negotiations break down. Students
taking that view should then have analysed United Group Rail Services
Limited v Rail Corporation New South Wales [2009] NSWCA 177.
Clause 2 raised a Masters v Cameron point, students had to see that and
analyse what category was relevant based on the entire agreement in
particular whether the undertaking to sign is of any relevance in making that
decision.
As regards clause 3 this raised an issue of uncertainty with an aspect of the
price being subject to further agreement. But did the provision for a market
price fix that, and in any case would it be inconsistent with the intention of the
parties for the court to fill this gap with a reasonable market price either as an
implied term or by way of an application of a standard of reasonableness.
Clause 4 raised the point that the sale was subject to the purchaser getting a
lease from the landlord. This clause is a bit vague it does not clearly
communicate whether the landlord has already agreed to this and if not then it
is still not clear whether that agreement operates as a condition precedent or
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subsequent to formation to this contract. But when read with clause 8 perhaps
it is a condition subsequent. Students had to make a decision on this with
reasons.
The passing of risk under clause 5 upon execution of the heads of agreement
does further suggest the parties intended the heads of agreement to have
some legal effect. Indeed this clause might have been considered relevant in
construing all the ‘subject to’ type clauses in this document. Whether or not it
is sufficient for the Coal Cliff test of requiring negotiations to be well advanced
is another matter as that question is not solely concerned with whether the
parties intended to be bound but whether the court could enforce the
agreement if asked. But query whether that is far removed from the general
approach courts take to uncertainty.
Clause 6 on its face does not seem to be too important, the heads of
agreement did not purport to be a sale so this clause of itself would not
suggest a lack of intention to be bound to the heads of agreement. However,
students could take a different view so long as they provided reasons for
doing so.
Clause 7 is another conditional element and it had to be determined whether it
conditions formation or performance using the cases that were on the reading
list.