Nurisvan Investments Ltd v Anyoption Holdings [2017] VSCA 141 considered whether a document purportedly executed as a deed can be capable of being enforced as a simple contract in circumstances where not all parties have signed the agreement.
Nurisvan was an appeal decision that considers the circumstances in which a document executed as a deed but that is ineffective as a deed can be upheld and enforced as a simple contract.
The Court was required to determine whether a heads of agreement that was not signed by all parties:
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Could nonetheless be enforced as a simple contract.
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Constituted a concluded immediately enforceable agreement or whether it was merely an agreement to agree in the future.
While the Court ultimately found that the heads of agreement was not a binding contract, but rather an agreement to continue negotiations in good faith, the Court (in obiter) stated that a heads of agreement that had not been signed by all parties could be enforced as a simple contract.
This case serves as a reminder to ensure that:
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Agreements are executed properly to avoid confusion as to enforcement down the track.
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If parties intend for heads of agreement to be enforceable as a contract, they should include this term in their agreement.
The case is also a warning to parties who later claim not to be a party to or bound by the agreements in the document that their post-contractual conduct may be considered when this question arises.
Background
Nurisvan and Anyoption entered into negotiations for Anyoption to purchase Nurisavan’s shares in FIBO, which is wholly owned by Nurisavan. FIBO and Anyoption executed a ‘Binding Heads of Agreement’ (Heads of Agreement) that governed the parties’ intentions to enter into a share purchase agreement pursuant to which all of Nurisvan’s shares in FIBO would be transferred to Anyoption.
Although Nurisvan was named a party in the document, it did not execute it and after lengthy negotiations, Nurisvan advised Anyoption that it did not regard itself as being bound by any agreement with Anyoption and did not accept that they had any obligations to comply with the Heads of Agreement.
The question for decision on appeal was whether the Heads of Agreement:
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Was enforceable as a simple contract against Nurisvan despite Nurisvan not executing the document.
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Constituted a concluded and immediately enforceable contract.
The parties’ conduct
According to the Amended Statement of Claim by Anyoption, Anyoption entered into an agreement as the purchaser with Nurisvan as the vendor and FIBO and Holley Nethercote whereby upon the completion of due diligence, Anyoption would purchase all of Nurisvan’s shares in FIBO for the sum of $100,000. Anyoption also pleaded that the agreement was partly in writing (consisting of the Heads of Agreement) and partly implied from the actions taken by the parties in accordance with the Heads of Agreement, including:
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The deposit paid by Anyoption to the stakeholder.
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Nurisvan’s lawyers drafting a Share Transfer Agreement.
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Anyoption carrying out due diligence on FIBO.
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Anyoption’s solicitor forwarding a final version of the Share Transfer Agreement containing all agreed terms by email.
Was the Heads of Agreement a binding deed or contract?
In appealing the decision of the trial judge, Nurisvan submitted (relevantly for this update) that the trial judge erred in her conclusions that:
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Even though the Heads of Agreement failed as a deed because it was not properly executed, it can still be enforced as a binding contract between the parties;
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The Heads of Agreement constituted a concluded immediately enforceable agreement for the transfer of Nurisvan’s shares in FIBO, or whether it was merely an agreement to agree in the future (The Masters v Cameron issue).
Ultimately on appeal, the Court found that the trial judge was correct on the first issue but erred on the second and that the Heads of Agreement was merely an agreement to negotiate in good faith with respect to entering a further agreement.
Is a deed not executed by all parties capable of operating as a contract?
It is clear that a document that purports to be a deed but which is not properly executed may constitute as a binding contract between the parties who have agreed to be bound by it.
However, as the Court noted, “in each of the authorities relied upon by the respondent, the document in question was signed or attested on behalf of the party against whom it is sought to be enforced, notwithstanding the party failed to properly execute it as a deed” (Nurisvan at [56]). It was therefore argued that the principles submitted in those cases are specifically in relation to documents which have been signed by the party against whom enforcement is being sought.
While, the Court held that an unexecuted deed should not be enforceable even in circumstances where the parties have accepted or bound themselves to the obligations in the deed, an agreement that is intended to be signed but is not signed by each party can still operate as a binding contract at law if the party (that did not execute the agreement) has bound itself to the agreement.
Taking into consideration commercial and business efficacy, the Court held that the same principle should apply to a document that purports to be a deed but has not been executed by a party. As a result, the Court found that the Heads of Agreement should still be treated as a contractual arrangement between the parties. Further, the Court found that adequate consideration had been given for the agreement (Nurisvan at [69]).
Was Nurisvan a party to the Heads of Agreement?
The question at trial and on appeal was whether it could be concluded that Nurisvan is a party to the Heads of Agreement even if it did not execute or otherwise attest the document. The Court held that the question must be determined objectively by evaluating the contractual document and looking to the circumstances for which the document was created, for example, whether Nursivan intended to be a party to the document and bound to the agreements that were contained in the document.
After considering the authorities, the Court affirmed the decision at trial and held that it was correct to take into account the post-contractual conduct of the parties to determine the existence and formation of the contract. Furthermore, sufficient basis to conclude that Nurisvan was a party to the Heads of Agreement included the fact that:
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FIBO cannot sell its own shares.
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FIBO is wholly owned by Nurisvan hence it is the only party which can sell its shares.
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The Heads of Agreement named Nursivan as the vendor and Anyoption as the purchaser.
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The clauses in the Heads of Agreement listed various responsibilities on Nurisvan as the vendor and Anyoption as the purchaser. For example, clause 4 stated that Nurisvan and FIBO would not negotiate with any third party about the sale of the shares or any FIBO assets during the term of the deed.
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The Court, noting the judge at trial, also emphasised the necessity for Nurisvan to be a party to the agreement in order to give business efficacy. Additionally, a ‘strong reference’ existed that Nurisvan is a party to the Agreement and agreed to be bound by terms of the Agreement since no sale of FIBO could be possible without Nurisvan’s agreement. Furthermore, the email exchanged between Nurisvan (and FIBO) and Anyoption displayed the usual characteristics that are intended in a transaction for the sale of shares. Taking into account all the circumstances, the Court affirmed the trial judge’s decision and held that it was correct to infer from Nurisvan’s conduct (especially between the period of December 2014 and October 2015) that Nursivan accepted and agreed to be a party to the Heads of Agreement.
The Masters v Cameron issue
While the Heads of Agreement could be enforced as a simple contract despite not being signed by Nurisvan, Nurisvan succeeded in arguing that it did not constitute a concluded immediately enforceable agreement for the transfer of Nurisvan’s shares in FIBO. Rather, the Court found that the Heads of Agreement was merely an agreement to agree. The trial judge had relied on the first category in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 to find that the Heads of Agreement constituted an immediately enforceable contract.
The Court looked at the terms contained in the Heads of Agreement and held that, taking the language of the Heads of Agreement, the nature of the clauses contained in it and the nature and extent of the terms left for future negotiations, it can be concluded that the Heads of Agreement is no more than a contract between the parties to negotiate in good faith with respect to entering into an agreement. Nurisvan’s appeal therefore succeeded on this ground (Nurisvan at [132]).