Australia: Side letters and collateral contracts: are they enforceable?

Key Points:

Any collateral contract which varies or supplements a principal agreement should be supported by separate consideration to enable that agreement to stand as a contract on its own

Side deals are often used by parties in a range of commercial transactions. They are typically informal arrangements which are used to supplement, vary or clarify the terms of the main (and more formal) transaction documents. The side deal may comprise an oral agreement or it may be documented in a letter or email. For various reasons the parties may not have wanted or been able to incorporate the side deal into the formal transaction documents, but the parties nevertheless usually intend for the side arrangement to be enforceable. The question is whether they are.

In the recent case of Adicho v Dankeith Homes Pty Ltd, the Court of Appeal of the New South Wales Supreme Court held that a side arrangement was unenforceable because it was inconsistent with the express terms of the main transaction document.

This case serves as a reminder of the importance of ensuring that side letters and similar arrangements are appropriately documented and, if inconsistent with the main transaction documents, meet all of the requirements for contract formation, including the requirement to be supported by its own independent consideration. If doubts exist as to the existence of consideration, then the prudent approach is for a nominal consideration (eg. $10) to be used, or alternatively the separate side deal should be prepared as a deed or the transaction documents amended as needs prior to signing.


Dankeith Homes Pty Ltd was the developer and owner of eight units in a development at Ingleburn, NSW. In August 2007 it entered into a contracts of sale with Mr Adicho (as the purchaser) for the sale of all eight units. Each contract provided for payment on exchange of a deposit equal to ten percent of the sale price. As it turned out, no deposit was in fact paid on exchange of any of the contracts. The trial judge found that this was primarily because an oral agreement existed between Dankeith and Mr Adicho to reduce the amount of each deposit to only $500. It is unclear why this was not properly reflected in the sale contracts, but it appears that the Dankeith may not have wanted the reduced amount of the deposit to be evident on the face of the sale contracts.

Completion of the contracts was due six weeks after exchange, but this did not occur. Dankeith served notices to complete which were not complied with. Following this, the parties entered into negotiations regarding the sale, with Dankeith serving fresh notices to complete in late January 2008. These were again not complied with and Dankeith terminated each of the contracts for breach.

Dankeith eventually sold the eight units to other purchasers and then commenced proceedings against Mr Adicho for damages for breach of each contract, including for non-payment of the full amount of the deposits.


The trial judge held that Mr Adicho was in breach of each of the contracts in failing to complete in accordance with the January 2008 notices and awarded Dankeith judgment against Mr Adicho for $365,440 (including interest of $79,940).

As mentioned above, the trial judge found that prior to exchanging contracts Dankeith and Mr Adicho had orally agreed to reduce the deposit payable to only $500 per sale, but the formal sale contracts did not reflect this reduction in the deposit.

Despite finding that the oral agreement existed, the trial judge held that it was unenforceable. Since the oral agreement was made in consideration of Mr Adicho entering into each of the contracts for sale and its terms were inconsistent with the written terms of each of those contracts, the oral agreement was not effective.

The trial judge also held that since the side deal related to sales of land and was not in writing it could not be enforced (see section 54A of the Conveyancing Act 1919 (NSW)).

On appeal the Court of Appeal upheld the trial judge's decision that the side deal was unenforceable. In doing so, the Court of Appeal applied the long-standing High Court decision of Hoyts v Spencer. In that case the High Court recognised that the mere act of a party proceeding to enter into a main agreement can itself be consideration to support a "collateral contract" made on or before the main agreement is entered into.

However, the High Court held that this only applies where the terms of the collateral contract supplement or add to the principal agreement. If the collateral contract is inconsistent with the main agreement, then the act of entering into the main agreement will not of itself constitute valid consideration to support the collateral contract. In this way, the principal agreement is essentially treated as the more important of the two agreements, and therefore the terms of collateral agreement will not be permitted to detract from the promises contained in the principal agreement.

Here, the collateral contract was made in consideration for Mr Adicho entering into the principal agreements. He did not provide any separate consideration for Dankeith's promise to accept the reduced amount of the deposits. Since the collateral contract sought to modify the principal agreements, it detracted from the very consideration which supported the side deal promise from Dankeith. It was therefore inadequate consideration and therefore the collateral contract was unenforceable as a contract.

If Mr Adicho had been able to show that he provided Dankeith with some other form of consideration in exchange for the promise to accept reduced deposits, then the collateral contract would have been enforceable as an ordinary contract. In such a case, the latter contract (ie. the sale contract) would be treated as having been varied by the earlier contract (ie. the collateral contract). Unfortunately for Mr Adicho, he was unable to identify any other consideration. Even if he could, the Court of Appeal agreed with the trial judge's conclusion that the collateral contract would have been unenforceable in this instance because it was not in writing.

This relatively technical approach to the consideration requirements for collateral contracts has been criticised by several commentators over the years, but this recent Supreme Court decision shows that it is still the law in Australia. Many would think that the result in this case is unfair because it does not accord with what manifestly were the parties' overall intentions, as evidenced by their very specific and contemporaneous agreement to reduce the amount of the deposits.

While not considered in the case, it is important to note that collateral contracts may potentially be indirectly enforced if the elements of promissory estoppel can be established. Furthermore, a party seeking to enforce a collateral contract may have a remedy for breach of section 18 of the Australian Consumer Law if the elements of misleading or deceptive conduct can be established.

Key implications

This case is a timely reminder that any collateral contract which varies or supplements a principal agreement should be supported by separate consideration to enable that agreement to stand as a contract on its own (the other elements of contract formation should of course also be present).

If doubts exist as to the adequacy of the consideration, a nominal amount of consideration (eg. $10) should be used or alternatively the collateral contract should be documented as a deed or, ideally, the terms of the side deal incorporated into the main transaction document before it is signed.

You might also be interested in ...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.