News

When you can’t let the dogs out – agreements that bite

21.09.2017

Des Hasler was sacked as coach of the Canterbury Bulldogs Rugby League team on 19 September 2017. In April 2017 it was reported that Hasler and the Bulldogs had agreed to a two year extension to Hasler’s coaching contract. Or did they?

The Bulldogs chairman issued a statement when announcing the sacking of Hasler which read, in part:

the heads of agreement reached with Des Hasler for an extension of his contract were non-binding and a decision has been made not to renew his contract for next year.

So there was a heads of agreement reached between Des Hasler and the Bulldogs, but the Bulldogs claim it was non-binding. In this newsletter, Moulis Legal’s Shaun Creighton addresses the question of whether there really can be an agreement reached between parties that is “non-binding”? Like the answer to a lot of legal questions, it all depends on the facts.

Heads of agreement or heads in a scrum?

Heads of agreement (often also called other things such as letters of intent, terms sheets or memorandums of understanding) are a form of preliminary agreement which outline a range of commercial or legal issues that are agreed “in principle” by the parties. Heads of agreement may be expressed to be legally binding, not legally binding, or legally binding in part. Some heads of agreement remain silent on the issue of enforceability. Other heads of agreement are expressed to be “subject to” other actions, such as the parties entering into a longer form binding agreement.

So, is the heads of agreement between Des Hasler and the Canterbury Bulldogs binding, especially after the Bulldogs publicly announced that they had signed Hasler to a two year contract extension? That will be a matter for the parties to sort out, or for the courts to decide. There are however some relevant cases that help provide some insight.

Masters (not Roy) will call the play

The pivotal case in relation to “agreements to agree” and unsigned contracts is Masters v Cameron (1954) 91 CLR 353.

In Masters case, the High Court identified three different categories where a form of preliminary agreement may be reached between parties, and whether such “agreements” are to be considered binding or not:

  • Where the parties have reached final agreement in on all terms and conditions and intend to be bound by those terms. The parties propose that these agreed terms and conditions be recorded in a more formal agreement which may be more complete or more precise, but not different in effect. Here, the parties are bound irrespective of whether the more formal agreement is executed.
  • Where the parties have completed negotiations and reached finality in all terms and conditions. The obligations are expressed to be conditional on a more formal agreement. Here, the parties are bound to bring the more formal agreement into existence.
  • Where the parties have engaged in negotiations but do not intend to be bound unless or until a formal agreement is signed. Here, the parties are not bound unless the more formal agreement is signed.
  • A fourth Masters-style category has been identified in subsequent cases. It applies where the parties have agree to be immediately bound based on preliminary terms, although it is expected that these terms and conditions will be substituted by a more formal agreement. Here, the parties are bound by the preliminary terms.

Fun and games with heads of agreement

In Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227, the dispute related to the sale of a super yacht marina business in Sydney. A Heads of Agreement was entered into between the parties, including a provision which stated:

Without affecting the binding nature of these Heads of Agreement the parties within 7 days [are] to execute a formal document or documents as agreed between their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement.

The “formal document or documents” were never entered into. The vendor sought to enforce the sale under the “binding” Heads of Agreement. The NSW Court of Appeal was left to determine which of the Masters categories applied to the facts. Here, the NSW Court of Appeal held that the question of whether the parties intended their arrangements to be binding needs to be objectively assessed from the terms of the Heads of Agreement as read in light of the circumstances. The NSW Court of Appeal held that this was in the second Masters category and ordered the parties to execute a formal agreement based on the terms agreed in the Heads of Agreement.

The fourth Masters-style agreement category was claimed by Factory 5 in a dispute with the Melbourne 2006 Commonwealth Games Corporation (“M2006”) in Factory 5 Pty Ltd v State of Victoria [2010] FCA 1229. Here, Factory 5 entered into negotiations with M2006 to become a concessionaire of licensed souvenirs and apparel for the Melbourne 2006 Commonwealth Games. A letter from M2006 to Factory 5 on 23 December 2004 stated:

We confirm that the parties have agreed that F5 is to be appointed as Concessionaire subject to reaching agreement on a legally binding Long Form Concessionaire Agreement to be provided by M2006 and subject to M2006 Board Approval.

Factory 5 claimed that the above statement made this a fourth category agreement with M2006, with the Long Form Concessionaire Agreement simply substituting what had been agreed. For its part, M2006 maintained that the 23 December letter fell into the third Masters category where there was no intention to make a concluded bargain unless and until a formal agreement was executed.

In the primary decision, Bromberg J held that the 23 December letter was properly categorised as being in the fourth Masters-style category, and that Factory 5 and M2006 had entered into a legally binding contract which would be substituted by a more formal agreement.

Although M2006 argued that further negotiations took place after 23 December 2004, Bromberg J differentiated between negotiations held for the purpose of reaching an agreement and negotiations held for the propose of accurately expressing in a more formal document what had already been agreed.

However, the games had only just begun, since M2006 successfully appealed Bromberg J’s decision in the Full Federal Court. In Factory 5 Pty Ltd (In Liq) v State of Victoria (No 2) [2012] FCAFC 150 the Full Federal Court held that the 23 December 2014 letter did not form a legally binding agreement for reasons which included that the letter was subject to a number of conditions that were never satisfied, and that there was no agreement between the parties on important terms.  Rather than amounting to a legally binding agreement, the Full Federal Court held that the 23 December 2014 letter “amounted to an acceptable framework for the preparation of a long form agreement that required substantive further negotiation and agreement.”

These cases are a mere glimpse into the types of issues a court will consider when assessing whether an agreement is legally binding.

Substituting players

In the Masters case it was confirmed that determining which of the above categories applies requires an objective assessment of intention as disclosed by the language that the parties have employed.

In the sacking of Des Hasler, it is interesting to note the comments of the then Bulldogs CEO, who was reported as stating in April 2017 that:

Des is a proven coach. His record over the years shows that and we are extremely pleased that negotiations have resulted in Des remaining at the club until the end of the 2019 season. This contract extension builds on the last five years of growth within our football program and Des is looking forward to the next two years.

Assuming the above was accurately reported, if the Bulldogs continue to argue that the Heads of Agreement with Hasler was not binding, it will be interesting to see what weight a court would give to this statement in assessing the intention of the parties.

It is likely that this is a case which will settle through negotiation. However if the Hasler v Bulldogs matter goes to final hearing in court, we might see Hasler bring out an attacking style of play… which is exactly what the Bulldogs demanded all along.

Lawyers may be less popular than any team other than the Raiders here in Canberra, but this matter is a timely reminder to involve lawyers throughout any contract negotiations. If you don’t want to enter into a contract you need to be very clear about it. Otherwise, your ability to substitute your players before full time might be at risk.

 

For more information, please contact Shaun Creighton on +61 2 6163 1000 or shaun.creighton@moulislegal.com.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.