Writing Requirements for Contracts for the Sale of Land and the Electronic Transactions Act
Section 59 of the Property Law Act 1974 (Qld) (“Property Law Act”) stipulates that a contract for the sale or other disposition of an interest in land must be in writing and signed to be enforceable. Other Australian jurisdictions have similar requirements.
However, in a digital age, circumstances in which the requirements of writing may be satisfied are not as obvious as you may think.
With a property market that is set to remain highly competitive for some time, and an ever-increasing reliance on electronic forms of communication, the risk of disputes, with respect to the enforceability of an agreement for the sale of land, is higher than ever.
To avoid disputes arising, it pays to keep in mind the circumstances in which an agreement for the sale of land becomes enforceable, and the steps that should be taken to minimise the risk of a dispute.
What’s so Special About Land Contracts?
The law has long recognised the special nature of contracts for the sale of land. This is due both to the uniqueness of land and its significant value.
Section 59 of the Property Law Act as well as its equivalents in other Australian jurisdictions, derive from the Statute of Frauds Act, which was passed by the Parliament of England in 1677 to prevent fraudulent conveyances of land.
By requiring a contract to be recorded in writing, the Statute of Frauds allowed the identity of the seller, his intention to sell, and the terms of the contract to be more readily verified.
Statute of Frauds in the Digital Age
In 1677, a wet signature on a physical document was the only reliable method readily available for the identification of parties to a contract sufficient to satisfy the objectives of the Statute of Frauds.
The quill had long been replaced by the pen when the Property Law Act was passed in Queensland in 1974. Nonetheless, there remained no suitable alternative for ink on paper to reliably identify parties to a contract for the sale of land and their relevant intentions.
However, by the turn of the millennium the digital age had well and truly arrived and so too did new methods for achieving the objectives of the Statute of Frauds.
In 2001, the Queensland Legislature, recognising the rapid transition to electronic forms of communication, passed the Electronic Transactions (Queensland) Act 2001 (Qld) (“Electronic Transactions Act”).
Section 14 of the Electronic Transactions Act provides that, where a State law requires a person’s signature, the requirement is taken to have been met for an electronic communication if:
(a) a method is used to identify the person and to indicate the person’s intention in relation to the information communicated;
(b) the method used was either:
(i) as reliable as appropriate for the purposes for which the electronic communication was generated or communicated, having regard to all the circumstances, including any relevant agreement; or
(ii) proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence; and
(iii) the person to whom the signature is required to be given consents to the requirement being met by using the method mentioned in paragraph (a)
Provided that an electronic communication satisfies the above criteria, it will be sufficient for the purposes of section 59 of the Property Law Act.
There are numerous examples in recent case law confirming that emails may be sufficient for the purposes of satisfying section 14 of the Electronic Transaction Act or its equivalents.
In Bullhead Pty Ltd v Brickmakers Place & Ors [2017] VSC 206, the party to be charged by his electronic signature ‘Brett’ when combined with his email address ‘brett6858@gmail.com’ identified himself and his intention in respect of the information communicated. In Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119 Ltd (“Stellard”), Martin J treated the requirements of section 59 of the Property Law Act as met where the offer accepted was made by a like email (see below). A similar approach was taken in Claremont 24-7 Pty Ltd v Invox Pty Ltd [No 2] [2015] WASC 220 in which the Supreme Court of Western Australia held that the printed signature of an individual in an email under the word ‘sincerely’ identified him and indicated his adoption of the information communicated by the email.
In circumstances where parties have engaged in negotiation by email, the court may readily infer that consent has been given by conduct of the other party. An express agreement to this effect is not required.
In most cases in which a party alleges an enforceable contract for the sale of land by way of email exchange, the main issue lies in determining whether the parties intended to become immediately legally bound.
The Intention Requirement
Parties to commercial negotiations routinely stipulate that offers are made “subject to written contract”, subjectively intending to avoid the formation of a binding contract until a written contract has been signed.
Courts use an objective test for determining whether parties to an agreement intended to become legally bound. A court will consider the relevant circumstances and asks itself, “would reasonable people regard the agreement as intended to be binding?” The subjective intentions of the parties are irrelevant.
In Queensland, there is a strong expectation that parties in negotiation for the sale of land do not intend to be bound until a formal contract is executed (Marek v Australasian Conference Association Pty Ltd [1994] 2 Qd R 521).
However, that expectation will be overcome by evidence of facts and circumstances supporting a contrary intention.
Crucially, as the well-known case of Masters v Cameron (1954) 91 CLR 353 provides, a stipulation that an agreement is ‘subject to the execution of a contract’, will not necessarily prevent the immediate formation of a binding contract.
What happened in the Stellard case?
In Stellard, the Supreme Court of Queensland considered whether an email exchange during negotiations for the purchase of a commercial property was sufficient to satisfy section 14 of the Electronic Transactions Act and give rise to an enforceable contract.
The relevant facts included the following:
- In late 2014, the seller, appointed an agent to sell freehold land and an associated business (the “Agent”);
2. There were some negotiations between the buyer and the Agent. On 30 October 2014, the Agent, on behalf of the seller, sent an email to the representative of the buyer relevantly stating:
“Further to our discussion this afternoon, the Sellers have indicated that they would sign a contract on the following terms …”.
3. The email went on to specify various terms of the proposed contract, including a purchase price of $1,600,000, a deposit of $80,000, and a settlement date 60 days from the contract date. A draft copy of a contract of sale, fully outlining the terms proposed, was attached to the Agent’s email.
4. On 31 October 2014 a representative of the buyer responded by an email to the Agent relevantly stating:
“Jay, further to our various discussions, I can confirm our offer of $1,600,000 for the business and freehold of the above property…
This offer is of course subject to contract and due diligence as previously discussed. We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out the necessary investigations.
I look forward receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses.”
(the “Offer Email”)
5. Shortly after on 31 October 2014, the seller’s representative sent an email to the plaintiffs relevantly stating:
“… We accept the below offer which we understand will be subject to execution of the Contract provided (with agreed amendments) …”.
(the “Acceptance Email”)
6. On 3 November 2014, the solicitor for the buyer sent an email to the seller’s Agent which attached an amended copy of the written contract and stated, “I have been instructed to forward to you an amended Contract … (the buyer) would like to exchange this contract as soon as possible …”. The amendments to the contract included the removal of the requirement for personal guarantees and the inclusions of a due diligence condition.
7. On 7 November 2014, the Agent emailed the buyer advising that the contract was not accepted due to the changes that had been made, and that the business had been sold to a third party.
The buyer argued that the emails exchanged between the Agent and the buyer on 31 October 2014 constituted a valid and binding contract.
The seller denied that a contract had been formed on grounds including that:
- the Offer Email was not capable of immediate acceptance, since it was stipulated as being ‘subject to contract’; and
- the parties did not intend to become legally bound by the contract until it had been signed.
The court applied the principles from Masters v Cameron and held that a binding contract had been formed.
In coming to its decision, the court found that:
1. the emails exchanged between the parties on 31 October 2014 satisfied the requirements of section 14 of the Electronic Transactions Act and section 59 of the Property Law Act because the emails reliably identified parties and their intentions with respect to the formation of the contract; and
2. the parties manifested an intention to become immediately bound by the terms of the contract, notwithstanding that the Offer Email and the Acceptance Email stipulated the terms to be ‘subject to contract’.
Relevantly, the court noted the following:
“The response from (the seller) … is consistent with the position that a contract had been formed. Although there is a reference to “subject to execution to of the contract …” that should not, in the light of the document which preceded it, be seen as a qualification to the acceptance, rather it is more consistent with the parties having agreed on the essential terms with the intention that they would be formally recorded later. Indeed, the words “agreed amendments” is consistent with something already having been resolved and it being acknowledged that there may be amendments to that agreement.”
Making your intentions clear without entering a binding arrangement
In the digital age, it is unwise to rely on a lack of a written and signed document to be satisfied that a binding contract will not be formed during email negotiations.
When engaged in negotiations regarding the purchase/sale of land, parties should be careful to ensure that their intentions with respect to the formation of a contract are properly understood and communicated.
Stipulations such as “subject to written contract” should be avoided entirely. Provisos to the following effect are preferrable, and where appropriate should be repeated regularly throughout the course of negotiations:
“The above does not represent an offer capable of acceptance. I do not intend to become legally bound by the above terms until such time that a properly executed contract has been exchanged by the parties.”
Subsequent conduct may be considered by a court asked to determine whether parties intended to become legally bound by negotiated terms. Accordingly, any subsequent communications received from other parties which are inconsistent with your intention, or those of your client, should be rejected and never ignored.
Tagged in: binding contract, contract, Electronic Transactions Act, Property Contract, Property Law, Property Law Act 1974