BMG v IC: Enforcement of Memorandum of Understanding

This assignment is a detailed case study of the contract enforceability debate between BMG and IC. It explores the Memorandum of Understanding (MOU) signed by both parties on February 1st, 2011, which was conditional upon IC leasing 65% of the shopping centre by March 15th, 2012. The assignment delves into the concept of promissory estoppel and misrepresentation, discussing how these factors may impact the enforceability of the MOU. It also examines the case of Masters v Cameron (1954) 91 CLR 360-4, which provides a framework for determining whether an agreement is enforceable or not.

Real Estate Law
[Just1137]
First Assignment Contract Law

Real Estate Law Assignment One
Contents
Definitions.............................................................................................................................................2
Facts......................................................................................................................................................2
Issue......................................................................................................................................................3
Commentary..........................................................................................................................................3
Did the contract exist?...........................................................................................................................3
Conclusion.........................................................................................................................................4
Misrepresentation..................................................................................................................................4
Remedies...........................................................................................................................................5
Recommendation...............................................................................................................................5
Estoppel.................................................................................................................................................5
Findings.............................................................................................................................................6
Conclusion.............................................................................................................................................6
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Real Estate Law Assignment One
Definitions
BMG: Blue Maroon and Gold Pty Ltd
IC: Intercorp
CON: Consolidated Properties Pty Ltd
Facts
1. The land was advertised for sale in the national newspaper around September 2010
2. The land offered an easy access road to shoppers
3. No other land in the area offered the same zoning for shopping centre
4. BMG, under a condition, agreed to purchase the land for $3.5m on 15th September 2010 and
the settlement to be on 15th July 2012
5. The condition of purchase of the land was that: the purchaser of the land (BMG) is to enter
into a lease contract with a tenant before 1st July 2012
6. In September 2010, BMG entered into discussion with IC, for IC to lease the to be built
shopping centre on the purchased land
7. In September 2010, a Memorandum of Understanding was reached between BMG and IC to
lease the shopping centre; this agreement was concluded and agreed on 1st February 2011.
8. BMG informed IC that it will complete the purchase of the land from CON
9. The directors of BMG and IC shook hands on the lease deal however; no documents were
signed, although there was written MOU. The parties agreed that their respective solicitors
would draw up the necessary documents to reflect what was set out in the last agreed version
of the MOU.
10. On 2 May 2012 the solicitor for BMG prepared the final version of the proposed Lease, which
was sent to IC for signature.
11. On 14 May 2012, IC solicitor wrote BMG stating that they wanted some significant
amendments to the Lease, which BMG agreed on
12. On 17 May 2012, BMG requested IC to executed signed copy of the Lease, together with the
supporting bank guarantee.
13. On 24 May 2012, IC wrote to BMG indicating that they are happy to proceed with the
agreement and they hope that BMG are ready to proceed with the construction of the project.
14. On 24 May 2012, IC Stated that the executed Lease will be considered by the Board of
Directors and then the Chairman and CEO will sign the Lease.
15. On 15 June, 2012 BMG elected to settle its purchase of the land earlier than the due date
under the contract "which was conditional upon IC entering into a lease with BMG".
16. On 30 June 2012 BMG demolished the old building on the land.
17. On 3 July, 2012 BMG requested IC that the executed Lease be signed and returned to them by
way of exchange with bank guarantee.
18. Again on 4 July, 2012 IC advised BMG that the signed lease is awaiting board approval
19. On 8 July, 2012 after receiving the market survey and a due diligence report from their
consultants, IC changes its mind about taking up the lease as the Board of Directors were
given documents recently received to consider, and those documents revealed:
a. The market survey was unfavourable as to the demand for a Shopping Centre Complex
b. There was other land offered for sale in the area, with similar characteristics
c. Access to the property at 100 Busy Road, Geelong was to be affected by a proposed
Freeway, which was gazetted by VicRoads on 20 May, 2011
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d. It was apparent that the Freeway constructing would affect access to the land and that
would have been known to BMG or at least, they were deemed to have received that
notice by operation of law when the Purchaser entered into the Contract, if they had done
their normal due diligence and searches.
e. IC were only able to obtain sub-tenants pre-commitment from 40% of proposed tenancies
available
20. On 15 July, 2012, IC wrote to BMG advising that they would not proceed with the proposed
Lease for the land.
Issue
a. Did a contract exist between BMG and IC on 1st Feb 2012?
b. After which BMG was told by IC on several correspondents that the lease will be signed and
the bank guarantee will be sent, BMG was not informed in the early stage of the MOU that
the Board of Directors needs to consider the agreement before it was to be signed by the
chairmen and the CEO. All of this could be a contributory to misrepresentation.
c. If the contract exists, can BMG enforce the contract and sue IC on the basis of Equitable
Estoppel?
Commentary
Did the contract exist?
To establish that BMG have a contractual right against IC, it is very important to prove that a contract
exist between BMG and IC. There must be an agreement between the parties before a contract can be
enforced and hence, for there to be a valid agreement it must be clearly identified that one of the
parties has made an offer and the other party accepted the offer.
In the case of Carlill v Carbolic Smoke Ball Co, the court held that Carbolic held 1000 dollars in a
trust if any customer bought his product will catch cold then they can claim their 100 dollars. The
court have found that it is showing the sincerity in the matter and the offer existed for any customer
that come to claim the reward hence the contract exist. This case gives an indication how the court
sees an offer can be accepted as a contract even if there was no signed contract.
The initial agreement between BMG and IC which was concluded in 1st Feb 2011 and the Directors of
both companies shook hands on the final terms and conditions sets out the basic obligation of both
parties. The transaction involves that BMG to build a shopping centre and IC to lease it for 10 years.
The offer becomes effective once it was communicated to the IC. BMG was very clear on
communicating the offer to IC by providing all the information which is related to the land the
development. In the other hand, IC acknowledges the information by negotiating and agreeing on the
terms of the lease contract.
This agreement was complete because it sets all the significant terms of the lease in clear in
conscionable manner. The negotiations between BMG and IC was centred on significant terms which
were fundamental to any Lease that would be entered into and were specifically set out in a
Memorandum of Understanding (MOU). Also, attached to the MOU was all the necessary document
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including the land sale information that BMG was given by CON, and IC was made aware of all
information provided by CON to BMG in relation to the particulars and aspects of the land.
IC implied to BMG on several correspondents that IC is happy with the terms that were sat in the
MOU and it is going to sign the lease contract in accordance with the agreement that was reached on
1st Feb 2011 and then send it once the management sign the lease.
Conclusion
For a contract to be existed, it must have specific characteristics. The involved parties must express
their acceptance by word or conduct, of the assent of the terms of the agreement. We must apply the
objective test, whether a reasonable person on the bases of the parties words and conduct, would
conclude that the parties agreed on the terms of the alleged contract and had intended to be legally
bound by their agreement.1
BMG and IC agreed on the fundamental terms of the agreement and communicated the agreement in a
clear manner which they have concluded their agreement on 1st Feb 2012. I believe that a contract
exist between the parties.
Misrepresentation
After agreeing on the terms of the lease contract on 1st Feb 2011, BMG on several occasions
requested IC to send the executed lease that was sent to IC by BMG however, IC replied with silence.
Silence on disclosing subsequent changes may be considered misleading and deceptive conduct, IC
was waiting for the consultant survey which did not inform BMG however, IC kept telling BMG that
they are waiting to get the board of directors to approve the lease before it was to be signed by the
Chairman and CEO.
IC solicitor send this statement to BMG on 24th May 2012:
"…our client hopes that the commencement of the project would be ready to proceed
as soon as possible, are your clients ready to go ahead with the commencement of the
project? Your client's executed Lease, will be considered by the Board of Directors
and as soon as the Board passes the required Minutes, both Chairman and CEO will
sign the Lease which will be forwarded to you, and will arrange, in due course, the
provision of the Bank Guarantee."
The above statement was an implication to BMG that the contract is going to be signed and
there are no issues however, BMG found out later that IC failed to inform that IC board of
directors were waiting for the consultant survey to make a decision on signing the lease.
This is not a mere representation rather; it is a misrepresentation to BMG. Looking at case
Krakowski v Eurolynx Pty Ltd (1985) 183 CLR 563, the vendor failed to disclose to the
purchaser of the property that new lessee was entitled to three month rent free and it was
entitled to a payment of $156k to fit out and stock of the premises.
It was apparent that IC took a long time to inform BMG that they are not interested in the
lease contract of the shopping centre is giving raise to misleading and deceptive conduct.
IC had a duty of care towards BMG to disclose all of the information on time without
postponement. IC breached its duty which made BMG to act under the impression that IC
1 Business Law of Australia
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is going to sign the contract. IC had the opportunity to exercise the right to stop the
agreement within a reasonable time and any delay will add to the affirmation of the
contract especially if IC was aware of the misrepresentation.
Remedies
Under the Australian consumer law section 18 subsections (1): A person must not, in trade
or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or
deceive.2
Under section s236 of the Australian Consumer Law, BMG could sue for damages for the
loss incurred especially after BMG relied on the information and the silence of IC to sign
the contract with CON and demolish the old building on the site.
Recommendation
Although BMG had strong merits to enforce the case of misrepresentation however, there
is a much stronger point in favour of IC. The point is that IC was under the impression that
the land had easy access for the shoppers however, BMG failed to inform IC on 20th May
2011 that access to the property at 100 Busy Road, Geelong was to be affected by a
proposed Freeway, which was gazetted by VicRoads. It was apparent that the Freeway
constructing would affect access to the land. This will make IC argue the alternative and
rescind the agreement.
It is not recommended to proceed with the case against IC under the misrepresentation
Estoppel
IC made a promise to enter in to a lease agreement with BMG making BMG to believe that
on 1st Feb 2011, IC is going to sign the lease on the Shopping centre by agreeing to the
terms on MOU.
Failure to execute the promise is not on its merits amount to unconscionable contact
however, BMG relies to their detriment on the assumption that the promise will be
performed and IC was aware of this detriment reliance. This was made when IC and BMG
concluded their discussions and agreed on the Term of the lease agreement on 1st Feb 2011,
and BMG agreed that it would complete the purchase of the site from Consolidated,
construct the shopping complex and IC would enter into a 10 year lease over the land, with
the building fully constructed and ready for occupation, with full compliance with all
statutes and regulations.
In the case of Jordan v Money (1854), the majority of the house of lards held that Estoppel
applies only where there was a misrepresentation of existing or past facts not a promise or
statement of intention.3
BMG believed that the MOU and the agreement it had with IC been satisfactory to form a
lease contract. BMG at which acted up on the actions of IC, that the lease will be signed
and no obstacles are present to stop such an action. In the case of Waltons Stores (W) v
Maher (M) (1988), the High Court frond that the facts raised a promissory estoppel issue
2 Australian Consumer Law Section 18
3 Business Law of Australia 12th Edition
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that the object of promissory estoppel is the avoidance of unconscionable conduct by the
promisor where there has been detrimental reliance by the promise.
The question here is whether a signed formal contract is enforceable or the earlier
agreement between BMG and IC is enforceable?
A leading case in Australia was a corner stone in the Equitable Estoppel doctrine was
Masters v Cameron (1954)91 CLR at 360-4. The court in this cast suggested three
categories which cases in this kind will fall into. First, whether the parties have finalised all
terms of the agreement and they intended to be bound to the performance of the terms. In
Such a case the agreement creates a formal contract. On 1st Feb 2011, BMG and IC agreed
on all the substantial terms of the lease agreement and agreed to put it in writing. I believe
that this has created a bounding agreement hence, MOU did not indicate whether this
agreement was bounding or not.
Second, the parties have completely agreed on the terms of the agreement with no
departure from them however, them may have made some amendment to some parts of the
agreement that was conditional to the execution of the contract. BMG and IC agreed on the
terms of the lease agreement and subsequently made some amendment to the agreement
such as IC to confirm a third party leasing from 65% by 15th Mar 2012 to 75%. The court
found that in such a case the agreement is enforceable.
Third, the contract was conditional on signing the formal lease, which was seen by the
court that the contract was not signed and it was bound by this condition therefore, the
contract in this case was not enforceable. In BMG and IC case, there was also a condition
of on the agreement that IC to lease 65% of the shopping centre by 15th March 2012 and
this condition was not met. Also, I believe that the request to amend the 65% to 75% which
was amended on 14 May 2012 which is after the date that was originally agreed on.
Findings
I believe that BMG v IC fell with the third category, in this case both parties agreed on the
memorandum of understanding dated on 1st Feb 2011 stating that the agreement is
conditional up on IC to lease 65% of the total shopping centre on or before 15th March
2012. On 8th July 2012, when IC decided to pull out of the deal, they stated that they were
only able to lease 40% of the shopping centre.
Conclusion
I believe that yes there was a contract between BMG and IC and they agreed on the terms,
also believe that the court could conceder the agreement on the MOU is sealed and
enforceable however, both parties held valuable information that would be considered
misrepresentation and misleading and deceptive conduct and it could be trailed in the court
of law and both parties could be found guilty. I do advise BMG not to take any legal action
is because there are a significant indication that BMG will lose the legal battle.
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References:
1- Business Law of Australia 12th Edition,Vermeesch and K E Lindgren.
2- Contracts 4th Edition, Leanne Wiseman, Michelle Backstrom and Pip Trowse.
3- Australian Consumer Law Section 18
Cases:
Carlill v Carbolic Smoke Ball Co
Krakowski v Eurolynx Pty Ltd (1985) 183 CLR 563
Masters v Cameron (1954)91 CLR at 360-4
Waltons Stores v Maher (1988)
Word Count: 2,748
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