Masters v Cameron

Author: Jasmine Burrows, Progressive Legal

Contracts form the foundation of countless business transactions, ranging from simple purchase agreements to complex commercial deals.  

The significance of the Masters v Cameron case lies in its establishment of principles that enhance our understanding of the binding nature of contracts. The case provides invaluable insights and guidance to business owners like yourself.  

The case unravels the myths in contract law that ‘you need a written agreement for something to be binding, and that if you have a written agreement, it is definitely binding.’ 

Overview of Masters v Cameron 

Facts: 

• Masters and Cameron signed a written memorandum for the sale and purchase of Cameron’s farm to Masters. 
• The agreement stated that it was ‘made subject to the preparation of a formal contract, which shall be acceptable to Cameron’s solicitors on the terms and conditions.’ 
• Masters paid the deposit to Cameron’s real estate agent, but later experienced financial difficulties and sought to withdraw from the purchase 
• Masters claimed that he was entitled to a refund because there was no binding and enforceable contract. 
• In response, Cameron claimed the memorandum did create a binding and enforceable contract despite the absence of a formal written contract. 

Issue: 

• The main issue of the case was: Did the written memorandum create a binding and enforceable contract? 

Decision: 

• The memorandum did not create a binding and enforceable contract.  
• The words ‘subject to contract’, suggested the memorandum was only a basis for the terms of a formal written contract.  

What are the Types of Written Agreements in Masters v Cameron? 

There were four types of written agreements that came out of Masters v Cameron. These agreements established key principles of contract law. They include the following: 

The first category: 

Where the parties have reached an agreement on the final terms of the contract and want to be legally bound by those terms immediately. However, they plan to officially document and formalise those agreed-upon terms at a later date.  

Is it binding? 

This first agreement is binding and can be enforced regardless of whether a formal contract is executed. This is because the parties have shown an intention to be bound and the terms of the agreement are certain. This is often the most common type of written contract.  

The second category: 

Where the parties have decided on the final terms of a contract and do not plan on changing those terms. Nevertheless, they have performed one or more of the terms depending on the execution of a formal written contract.  

Is it binding? 

The second agreement is binding, however, subject to the execution of a formal contract.  

In this case, the parties are bound to join in bringing the formal contract into existence and then to carry it into execution. The terms in the contract must not be varied from the original agreement.  

The third category: 

Where the parties do not intend to make a binding agreement unless and until they execute a formal contract. 

Is this binding? 

No, this is not binding. This was the type of written agreement found in Masters v Cameron.  

The fourth category: 

Note, there is a fourth category that was not discussed in Masters v Cameron, but was later deduced by Australian courts. This is where the parties first reach a preliminary agreement and document it in an informal manner. They also acknowledge that more terms can be added in a future formal contract. 

Is it binding? 

This is binding. A key requirement for this agreement to be binding is that the key commercial terms must be sufficiently clear and definite, rather than serving as a basis for further negotiations. The courts decided that a fourth type of agreement had to be established to ensure that bargains are upheld, even if the parties’ intentions are only expressed in a preliminary agreement.  

What is the Masters v Cameron legal test? 

In order to interpret an agreement, the court will apply a legal test. The court must:  

1. Objectively examine the language used in the agreements and discern whether the parties intended for the agreement to be immediately binding. 
2. Interpret the agreement in the context of surrounding circumstances. These include the: 

• purpose, intention and objective of the agreement; 
• what the parties understood the agreement to mean; 
• the knowledge of the parties; and 
• the context of the commercial transaction.  

Case Law: 

Here are some case law examples of the court applying the principles found in Masters v Cameron.  

Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 

• Ermogenous served as the Archbishop of the autocephalous Greek Orthodox Churches for 23 years before resigning. 
• He sued the Greek Orthodox Community for unpaid entitlements he claimed were due under the contract for employment he had with the Community. 
• The Community, however, denied he served under a contract of employment. 
• It argued that this was a social relationship, due to the personal nature of a religious minister, and was not intended to give rise to any legal rights between the parties. 
• The court disagreed with the Community and found in favour of Ermogenous. 
• The court determined that depending solely on a presumption could mistakenly lead to the belief that there was no contract, without taking into account the actual circumstances of the agreement between the parties. 
• The court must always look to the what the parties objectively intended by the actual terms and surrounding circumstances of the agreement between them in order to correctly determine the nature of the agreement in dispute; i.e. whether it is contractual or not. 
• The court applied Masters v Cameron and confirmed it as still being good law. However, it also stated that the specific categories established in that case should not be strictly applied as fixed categories that all cases must fit into. Nonetheless, in most situations the majority of cases will still align with one of those four categories mentioned above. 

Bobi Damcevski v Emilios Demetriou & Ors [2018] NSWSC 988 

• The court examined whether a settlement agreement made during mediation, which required the execution of a formal deed of settlement and release, was a legally binding agreement. 
• During mediation, the parties signed a document called ‘Heads of Agreement.’  
• The plaintiff argued that this document had immediately binding and enforceable terms, falling under the first category of Masters v Cameron. 
• The defendants, however, claimed that the Heads of Agreement was not binding and only represented an ‘agreement to agree’, falling within the third category of Masters v Cameron. 
• The court laid out the following principles for determining the binding nature of the agreement: 
• The intention of the parties to create immediate binding terms should be objectively determined based on the language used in the Heads of Agreement. 
• The surrounding circumstances should be taken into account when interpreting the Heads of Agreement. 
• If the terms of the Heads of Agreement indicate an immediate intention to be bound, it should be given effect. 
• Post-contractual conduct can be considered to determine if a contract exists between the parties. 
• Applying these principles, the court concluded that the Heads of Agreement was indeed a binding agreement with two pending outcomes: the preparation and signing of the deed of release and settlement, and the provision of a mortgage. Therefore, it fell under the first category of the Masters v Cameron case.