Samuel Goldwyn, the Hollywood movie mogul, reputedly once said “A verbal contract isn’t worth the paper it’s written on”*
- Published 31.05.2021
*Per Rares J TWW Yachts Sarl v The Yacht “Loretta” (No 1) (FCA 2021) at paragraph 1
This case looks at whether what was said in a telephone conversation can amount to a binding agreement within the meaning of either the first or second limbs of Masters v Cameron1.
On 17 September 2020 the parties entered into a contract for the sale and purchase of Loretta, a 40-metre pleasure yacht registered in the Cayman Islands.
The yacht was moored at Southport near Brisbane and was to be transported from Queensland to Palma De Mallorca, Spain by 31 January 2021.
The contract for sale was found in a memorandum of agreement on a standard form approved by MYBA (The Worldwide Yachting Association), which his Honour accepted was used for international yacht broking agreements.
At the time of execution of the contract, there were three addenda which the parties executed at the same time and formed part of the contract.
The Court was required to decide whether in a meeting held electronically on 13 November 2020 (the Meeting) the parties made an agreement to vary the terms of the contract because of certain events that had occurred during a sea trial of the Loretta.
If the contract was varied in the Meeting there was a dispute as to whether the buyer had performed its obligations under the varied agreement. If the contract was not varied, the buyer sought specific performance of the sale contract and, in the alternative, damages for misleading and deceptive conduct.
In the lead up to the Meeting correspondence was had between the representatives of the buyer and the seller concerning certain shortcomings in the performance of the Loretta during her sea trials.
That correspondence ultimately resulted in a Maltese lawyer, acting on instructions of the seller, producing a fourth written addendum to the contract. There were multiple versions of this proposed fourth addendum. Amongst other things, the addendum provided for:
- a variation in the purchase price;
- an extension of the completion date;
- that the parties would share the ongoing costs of maintaining the vessel on a 50/50 basis; and
- the buyer would pay AUD50,000 to cover its proportion of the expected expenses.
Upon receipt of the third version of the fourth addendum, the seller’s agent sent an email to the buyer’s agent saying “All good by me”.
The critical Meeting
On 13 November 2020, the buyer’s and seller’s representatives had a telephone meeting to clarify and confirm the final terms.
Because of the seller’s email saying “All good by me”, the buyers conducted the discussion on the basis of attending to the details of the two things they considered most important:
- payment of the AUD50,000; and
- booking a ship to transport the Loretta to Palma de Mallorca.
The evidence of the buyer’s representatives was that the seller’s representative said at the end of the conversation:
It was when they [scil: Mr Bender] said, ‘You guys show me the evidence that you’ve booked, and then we will get a signature”, that was said. “You guys show me the evidence that you booked the freight contract and 50,000 are paid, and we will get the signatures.”
However on the same day, the seller began to discuss version 3 of the fourth addendum with his representatives, which ultimately led the seller to creating ‘version 4’ which was sent to the buyer via email on 14 November 2020.
The buyer rejected version 4 and on 17 November 2020 sent through remittance for payment of AUD50,000 and the contract for the transport of the Loretta to the buyer.
The buyer argued that in the telephone discussion on 13 November 2020 the parties had reached a binding agreement.
The seller argued that because version 4 of addendum 4 was rejected by the buyer, version 3 would also be repudiated.
The seller also argued that version 4 was a counter-offer as opposed to amending the existing contract.
The Court found that version 3 and the oral agreement on 13 November 2020 satisfied the second type of contract found in Masters. It was found that a reasonable person would believe if the two conditions were satisfied, the oral agreement would become binding.
In this case, version 3 of addendum 4 to the contract became binding when the buyer made payment of AUD50,000 to the seller and produced proof of payment for the shipping of the Loretta.
The buyer was entitled to an order for the specific performance of the contract.
In the circumstances of this case, Mr Goldwyn’s famous observation did not prove to be the case: somewhat obtusely, he is also quoted as saying: I'm willing to admit that I may not always be right, but I am never wrong.
1Masters v Cameron (CLR 1954)
Masters v Cameron, explains that the parties in an existing agreement can enter into a further agreement that varies the contract in two ways:
- parties have reached finality in arranging all the terms of their bargain and are bound to performance of those terms, but at the same time propose to have the terms re-instated in a form which will be fuller or more precise but not different; and
- the parties have agreed upon the terms of the bargain and do not intend to depart from these terms, but nevertheless have made performance of one or more of those terms conditional upon the execution of a formal document. (Masters v Cameron par 79-81)