Understanding the differences between an agreement and a deed: lessons from 400 George Street (Qld) Pty Ltd v BG International Ltd

Sign up with Cleardocs to continue reading

Also receive a copy of Cleardocs' top premium ClearLaw articles for free.

• the Owner and another owner, Grosvenor Australia Investment Pty Limited, executed on or about 21 October 2008;
• another owner, Leighton Properties Pty Limited, executed on or about 22 October 2008; and
• it was claimed by the Owner that the final owner, Trinkaus Austalien Immobilin-fonds NR 1 Treuhand GMBH (Trinkaus), which was located in Germany, executed on 25 November 2008: however, this evidence was open to doubt as by the last week of November 2008 the documents had not been executed and returned to BGI.

In any event, the date of signing by Trinkaus was found to be immaterial as BGI did not receive a fully executed Agreement for Lease before it changed its mind about leasing the property and indicated an intention to withdraw from the Agreement for Lease.

Issue in dispute

The issue in dispute was whether the Agreement for Lease bound the parties.

The Owner's arguments

The Owner claimed that BGI was bound by the Agreement for Lease because it was executed as a 'deed', and therefore BGI could not withdraw from it.

BGI's arguments

BGI rejected the Owner's claim on the basis that the agreement between the parties was 'subject to contract' as indicated in the signed letter of offer, meaning that each party understood or should have understood, that a party could withdraw before all of the parties had executed and exchanged all legal documents, including the Agreement for Lease.

The decision

The Court of Appeal unanimously upheld the decision of the trial judge McMurdo J and dismissed the Owner's appeal.

It found that:

• on a proper construction, the Agreement for Lease was a deed because:
  • as the top of the signing page contained the words "Executed as a Deed"; and
  • the signing clause stated it was "signed, sealed and delivered".
  References in the document to it being an agreement were relevant however, on balance, the evidence suggested the document was a deed. It was in this context that the Court made its comments about the features and formalities of deeds.
• this conclusion was not affected by the fact that consideration was provided under the deed: both deeds and agreements can provide for the parties providing consideration.
• the parties' intention - as evidenced by the letter of offer - was that they would only be bound once they executed the relevant legal documents.
• even though the Agreement for Lease was a deed, it was not binding on the parties as it had not been 'delivered'. The deed was not delivered until the document was fully executed by all parties, and physically delivered to the other parties.

An application to have the case brought before the High Court of Australia was refused.

Back to basics: key principles of a deed

To be valid and enforceable, deeds must:

• be in writing;
• be signed;
• be witnessed by at least one person who is not a party to the deed;
• state on its face that it is a deed, using wording like "this deed" or "executed as a deed": to put the matter beyond doubt, all references in the document should be consistent; and
• be delivered to the other party or parties.

Unlike in an agreement, consideration is not required for a deed to be legally binding.

Can performance under a deed be subject to satisfaction of a condition?

Yes. A deed can be executed on the basis that a party is not bound to perform its obligation until some condition is satisfied. Under these circumstances however, the party which has executed the deed cannot withdraw from their obligations once the condition is satisfied

What is a deed poll?

A deed poll is a deed made by one person in favour of a particular entity or class of entities. It binds only one party and expresses an intention or declaration instead of a promise.

For example, deed polls are often used when someone wants to change their name.

Where the Cleardocs Deed of Confidentiality is used for a one way disclosure of information between the parties, and only the person who has received the confidential information (known as 'the Confidant') has signed the deed, then it takes effect as a deed poll by the Confidant in favour of the person who disclosed the information to them (known as 'the Discloser'). You can read more information on the Cleardocs Deed of Confidentiality here.

Back to basics: key principles of an agreement

An agreement is governed by contract law. Under contract law, to be valid and enforceable, a contract must satisfy the following pre-conditions:

• offer and acceptance: offer from one party that is accepted by the other party;
• intention: each party must have an intention to be legally bound; and
• consideration: consideration must flow between the parties.

Deeds are commonly used if there is doubt about whether there is adequate consideration flowing from one party to another in a transaction.

Key points to remember about deeds and agreements

1. A deed should be used where the parties are unsure whether adequate consideration is flowing between the parties.
2. The periods during which people can bring actions for breach under deeds are significantly longer than for agreements. The statutory limitation period for agreements is 6 years. The statutory limitation period for deeds varies between the States and Territories. In Victoria for example, it is 15 years and in New South Wales it is 12 years.
3. In some circumstances, such as certain property transactions, legislation requires the document to be a deed.
4. If you intend to enter into a deed, all clauses of the document, including the opening statements and signing blocks must be consistent with the language of a deed so it is clear that both parties intended the document to be a deed.
5. Check any documents to ensure they do not make reference to it being both an agreement and a deed. For example, clauses referring to 'In this Agreement….' or '…on or by the date of this Agreement' and the signing clauses stating 'executed as a deed'.
6. If you enter into a letter of offer or heads of agreement with another party which states that the arrangements are not binding until legal documents are executed by both parties, then the other party may withdraw from the transaction:
   1. where the legal document is an agreement, if you have not signed it correctly; or
   2. where the legal document is a deed, if you have not signed it correctly and delivered it to the other party.
7. Exchange signed contracts in person where possible.
8. The conduct of the parties is relevant in determining whether a document binds a party. For example, one party may have started performing their obligations under the document.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read articles concerning companies here.

Order Cleardocs company services packages

• Company Registration
• Registration Documents Only
• Sole Director Package
• Change to Constitution
• Division 7A Loan Agreement
• Company Name Reservation
• Deed of Confidentiality