Masters v Cameron (1954) 91 CLR 353

Facts

  • The case involved parties who negotiated terms for an agreement, anticipating the preparation and execution of a formal written contract.
  • Dispute arose as to whether the preliminary agreement between the parties was legally binding, given the existence of ongoing negotiations and the stated intention to execute a formal contract at a later stage.
  • The High Court of Australia was called upon to determine whether the parties had created a binding legal obligation based on their preliminary agreement or if their arrangement was subject to the completion of further formalities.

Issues

  1. Whether the preliminary agreement between the parties constituted a binding contract or was only an agreement to agree, pending formal documentation.
  2. How to categorise preliminary agreements to assess the parties’ intention to be immediately bound or to postpone legal effect until the completion of formal documents.
  3. Whether agreements to negotiate in good faith or to finalise further terms are enforceable or merely evidence preparatory steps.

Decision

  • The High Court established three categories of preliminary agreements, each reflecting different intentions as to when parties become legally bound.
  • The Court held that, depending on the category into which the arrangement falls, the preliminary agreement may or may not be legally enforceable as a contract.
  • The decision clarified that the specific language used, such as “subject to contract,” along with the surrounding context, is decisive in determining the parties’ binding intent.
  • The case provided a structured framework to evaluate whether a binding contract exists when formal documentation has not yet been executed.

Legal Principles

  • Preliminary agreements fall into three principal categories:
    • Agreements where parties intend to be immediately bound, pending subsequent formalisation.
    • Agreements conditional upon execution of a formal contract, with no binding obligation until such execution.
    • Agreements to negotiate in good faith, which may not establish binding obligations except to negotiate openly.
  • The intention of the parties, as revealed by words and conduct, is decisive in determining the binding effect of preliminary arrangements.
  • Courts examine not only the wording (“subject to contract”) but also context and behaviour.
  • Later case law has refined these principles and discussed possible expansion to a fourth category, though its status remains unsettled.

Conclusion

Masters v Cameron (1954) 91 CLR 353 established the key approach for classifying preliminary agreements in contract law, centring on the intention to be bound and providing a structured method widely applied in commercial and general contractual disputes.

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