From inbox to agreement: How email conversations can amend a contract (but not a registered mortgage)

It's hardly news that parties to commercial transactions, along with their lawyers, communicate mostly by email. That includes their negotiations. At what point do those communications turn into an agreement, or amend one already in existence? A recent case underscores the importance of precision in drafting agreements and highlights the court’s approach to the principles of contract modification and statutory compliance (PF 473 Pty Ltd v Qasim [2024] NSWSC 874).

The mortgage is signed, but both parties want changes

In this case, Rohailla Holdings Pty Ltd (a company owned by Ms Qasim, the Defendant) borrowed approximately $2.8 million from a commercial lender, PF 473 Pty Ltd (the Plaintiff). To secure the loan, Ms Qasim provided a guarantee which was supported by a registered mortgage over two properties in Randwick, NSW. Rohailla Holdings Pty Ltd defaulted and PF 473 sought an order for possession of the properties in accordance with the terms of the mortgage.

Ms Qasim argued various emails between the parties' solicitors the signing of the mortgage documents and the registration of the mortgage, affect the terms upon which Rohailla Holdings Pty Ltd is liable to repay the borrowed money and the calculation of the debt outstanding.

The NSW Supreme Court therefore was asked to consider two key issues:

1. whether the communications between the parties after the mortgage was signed constituted an agreement to modify the original terms to those specified in the registered mortgage; and

2. if so, whether that change was ineffectual for non-compliance with the formalities specified in section 23C, and subsequently section 54A(1) of the of the Conveyancing Act 1919 (NSW).

Can email communications amend the original terms of a contract?

The Court found that the email exchanges clearly demonstrated the parties’ mutual intention to vary the original terms of the mortgage, changes which included adjustments to the repayment schedule and interest rate. These were further formalised when the Defendant’s solicitors authorised the Plaintiff’s solicitors to hand-amend the already executed documents.

Ms Qasim argued that she had not seen the Plaintiff's valuation which gave rise to the subsequent changes, and that her solicitor's emails did not align with her subjective understanding and instructions. However, the Court dismissed these arguments, stating that such matters did not affect the legal validity of the agreement to amend the original terms.

Ms Qasim also sought to rely on a "variation and waiver" clause in the mortgage documents which required any variations to be in writing and signed by the parties. Justice Faulkner clarified that such clauses do not invalidate an otherwise enforceable agreement to amend.

Compliance with formalities: in writing and signed

Ms Qasim further contended that any variation to the original agreement entered into on 6 December 2022 had to comply with the formal requirements specified in section 23C of the Conveyancing Act. The Court rejected this argument, noting that section 23C relates to interests in land and was irrelevant to creating a security interest upon registration of the mortgage. Instead, the Court focused on section 54A(1) of the Conveyancing Act which stipulates that contracts for the sale or disposition of land must be in writing and signed by the party to be charged or their authorised agent to be enforceable.

The Court concluded that the email communications satisfied these requirements. The emails were deemed to be "in writing" under the Interpretation Act 1987 (NSW), and the inclusion of Ms Qasim’s name at the foot of her emails, along with her solicitor’s email signature, met the definition of "signed" under section 9(1) of the Electronic Transactions Act 2000 (NSW). As a result, the Court held that the agreement consisted of both the original documents and the subsequent email exchanges. The Court made orders granting the Plaintiff immediate possession of the Randwick properties, dismissed Ms Qasim's cross-claim, and made declarations regarding the facility term and applicable interest rates under the mortgage.

Importantly, the Court emphasised that the Plaintiff’s claim for relief was based on the terms of the registered mortgage, not the agreement as amended by the emails. Once a mortgage is registered, the mortgagee (lender) gains an indefeasible interest in the property, subject to limited exceptions such as fraud. In this case, the Plaintiff was entitled to possession of the mortgaged properties despite disputes over the terms of the loan agreement.

Key takeaways

In today’s commercial environment, where email is often the primary mode of communication, it is crucial to understand that email communications can constitute binding agreements in real estate transactions and amend a contract. With this in mind, parties (and their lawyers) should ensure that any variations to contracts or loan agreements should be clearly documented and agreed upon in writing to avoid ambiguity. That includes keeping track of all communications between parties, whether by phone, letter, email, WhatsApp or other platforms.

Parties, particularly borrowers, should carefully review loan terms and ensure they understand their obligations, particularly in relation to interest rates, facility limits, and repayment terms, and where they come from. In this case, whatever the terms of the amended agreement might have been, there was a registered mortgage. As soon as that mortgage was registered, a security interest was created. In effect, the parties had created two sources of their rights – the registered mortgage, and the loan agreement which kept changing after the mortgage was registered – but had not reconciled them by varying the registered mortgage. Where those might conflict, the registered mortgage prevails.