Background
Disage owned approximately 16 hectares at North Rothbury, New South Wales. A riparian corridor divided the property into eastern and western portions. Stonebark and Disage signed a heads of agreement on 24 April 2021 concerning a proposed subdivision and Stonebark’s contemplated purchase of the eastern portion. Stonebark subsequently paid Disage a total of $170,000 and undertook development-related work.
The parties never agreed upon a subdivision plan or the contemplated option agreements and sale contracts. After Disage asserted that the heads of agreement was unenforceable, Stonebark sued, claiming contractual and equitable rights to the property. It sought specific performance or damages, and alternatively relied on proprietary estoppel, constructive-trust theories, alleged fiduciary duties, and equitable compensation.
The Court’s Holding
McGrath J held that the heads of agreement was not binding or enforceable. Because the parties had not agreed on the subject matter to be bought and sold, they could not have intended to be immediately bound. The document was an archetypal agreement to agree rather than an enforceable contract, including under the asserted fourth category of Masters v Cameron.
The Court also held that Stonebark had not established proprietary estoppel, a common-intention or joint-endeavour constructive trust, or any fiduciary duty owed by Disage. Nothing Disage did amounted to an unambiguous representation that Stonebark would receive a proprietary interest, and Stonebark proved no relevant joint endeavour or joint venture. Even if the heads of agreement had been enforceable, the Court would not have ordered specific performance or awarded damages in lieu. Stonebark’s claimed lost profit was not proved; the only recoverable amount was the $170,000 paid to Disage, plus interest. The parties were directed to submit proposed orders giving effect to repayment, dismissal of the balance of the amended claim, and Stonebark’s payment of Disage’s costs.
Key Takeaways
- A heads of agreement will not be enforceable when an essential matter—here, the identity and extent of the property to be sold—remains unresolved.
- Work performed and money spent in anticipation of a development do not themselves establish a proprietary estoppel, constructive trust, joint venture, or fiduciary relationship.
- A lost-profit claim requires evidence directed to the profit allegedly lost; a valuation model’s allowance for “development profit and risk” was not proof of Stonebark’s net profit.
Why It Matters
The decision illustrates the risk of commencing property-development work under preliminary documentation before the land, subdivision arrangement, and definitive transaction instruments have been settled. Labels such as “heads of agreement” are not decisive, but a court will not enforce a proposed transaction whose essential subject matter remains open.
It also shows that equitable claims cannot automatically cure an incomplete bargain. Clear encouragement of a proprietary expectation, reliance on that encouragement, and the necessary relationship or unconscionability must be proved independently; substantial expenditure and negotiations alone are insufficient.