Express Clearances Pty Ltd v The Austral Brick Company Pty Ltd

[2007] NSWSC 213

Reported Decision: (2007) NSW ConvR 56-177
(2007) ANZ Conv R 245
(2007) Q Conv R 54-674

New South Wales

Supreme Court

CITATION:	Express Clearances Pty Ltd v The Austral Brick Company Pty Ltd [2007] NSWSC 213
HEARING DATE(S):	8 December 2006
JUDGMENT DATE :	14 March 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Defendant has not validly exercised the put option in the put and call option deed of 31 January 2005.
CATCHWORDS:	CONTRACTS [23]- General contractual principles- Options- Exercise of option- Validity of exercise- Put and call option deed- Put option purportedly exercised by defendant vendor- Whether defendant served notice of its intention to exercise put option otherwise than as required by deed- Where option specifies precise method of service, it will generally be regarded as mandatory- Held no exercise of option.
CASES CITED:	Ballas v Theophilos (No 2) (1957) 98 CLR 193 Bava Holdings Pty Ltd v Pando Holdings Pty Ltd (1998) 9 BPR 16,295 Carter v Schmitt [2003] NSWSC 1166 CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588 FAI General Insurance Company Ltd v Parras (2002) 55 NSWLR 498 George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387 Holwell Securities Ltd v Hughes [1974] 1 WLR 155 Magripilis v Baird [1926] St R Qd 89 Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR 241 Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617 Tonitto v Bassal (1992) 28 NSWLR 564 Young v Lamb (2001) 10 BPR 18,553
PARTIES:	Express Clearances Pty Ltd (P) The Austral Brick Company Pty Ltd (D)
FILE NUMBER(S):	SC 6084/06
COUNSEL:	R M Smith SC and M A Jones (P) M J Darke (D)
SOLICITORS:	McGrath Dicembre & Co (P) Allens Arthur Robinson (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Wednesday 14 March 2007

6084/06 – EXPRESS CLEARANCES PTY LTD v THE AUSTRAL BRICK COMPANY PTY LTD

JUDGMENT

1 HIS HONOUR: I am dealing with a separate question that arises between the parties to this litigation.

2 The litigation generally concerns whether or not there was a contract made between the plaintiff as purchaser and the defendant as vendor with respect to land at Horsley Park and if there was such a contract, whether it has terminated and whether the defendant can call on a bank guarantee given in lieu of the deposit.

3 However, on 8 December 2006, by consent, I made the following order:

Order that pursuant to Part 28 Rule 28.2 of the Uniform Civil Procedure Rules there be heard as a separate question in advance of any other question in these proceedings whether the Defendant has validly exercised the put option in the deed of put and call option between the parties dated 31 January 2005.

4 The separate question was argued before me on 8 December 2006. Mr R M Smith SC and Mr M A Jones appeared for the plaintiff and Mr M J Darke appeared for the defendant.

5 In order to address this question, it is necessary to set out a considerable number of the provisions of the relevant deed. I will set out the material clauses. It will be noted that various nouns in the clauses unusually have capital letters: this normally denotes a term defined in the definition clause.

6 By clause 4.1:

In consideration of the Call Option Fee paid by the Purchaser to the Vendor … the Vendor grants to the Purchaser an option to purchase the Property at the price and on the conditions specified in the Contract.

7 Clause 8.1 was as follows:

In consideration of the Put Option Fee paid by the Vendor to the Purchaser… the Purchaser grants to the Vendor an option to require the Purchaser to purchase the Land at the price and on the conditions specified in the Contract.

8 Clause 9.1 set out the procedure for exercise of the put option as follows:

The Put Option may be exercised by the Vendor or its agent at any time after the Put Option Date and before 4pm Sydney time on the Put Option Expiry Date by delivery to the Purchaser at the same time of:

(a) a written notice that the Vendor exercises the Put Option; and
(b) 2 copies of the Contract duly executed by the Vendor and completed as follows (details omitted)

9 Clause 9.2(a) was as follows

(a) On exercise of the Put Option in accordance with this Deed, the Contract will be taken to have been entered into on that date, whether or not the Contract is signed by the Purchaser.

10 Clause 11.1 provided that any notice given under the deed must be in writing addressed to the intended recipient at the address shown in the clause or the address last notified by the intended recipient to the sender. The clause set out the name, fax number and street address of the relevant officer of the parties to whom notices must be sent.

11 Clause 11.2 provided that a notice given under the deed “must be signed by a person an Authorised officer of the sender” and then made provision for the date on which the notice would be deemed to have been received.

12 Clause 1.1 was the definition clause and contained, inter alia, the following definitions:

Business Day means a day other than Saturday, Sunday or a public holiday in Sydney;

Call Option Expiry Date means the date which is 10 Business Days after the Vendor gives the Purchaser notice of registration of the Plan;

Put Option Date means the date which is the day after the Call Option Expiry Date;

Put Option Expiry Date means the date which is 20 Business Days after the Put Option Date.

13 Clause 1.2 is headed “Interpretation” and includes the following:

(f) A reference to any party to this Deed … includes the party’s successors and permitted assigns;
(g) Mentioning anything after include, includes or including does not limit what else might be included.

14 Clause 16 makes time of the essence in the deed in all respects.

15 It is now necessary to turn to the facts, which, so far as the separate question is concerned, are basically common ground between the parties.

16 On 7 July 2006, the defendant’s solicitor faxed to the plaintiff’s solicitor a letter stating that the plan of subdivision of the land was approved and the land had been registered and zoned “employment”. The letter also stated that under the deed the plaintiff had until 21 July 2006 to exercise the call option after which the defendant may exercise the put option.

17 The plaintiff contends that the fax of 7 July 2006 was not validly served according to the deed as it was served on its solicitor and not on the plaintiff.

18 I will need to evaluate this contention, the issue being the proper construction of clause 11 of the deed as to whether it allows for service on the purchaser’s agent.

19 The plaintiff did not exercise the call option.

20 On 26 July 2006 the defendant purported to exercise the put option requiring the plaintiff to purchase the land and triggering the creation of the contract for sale of land pursuant to cl 9.2(a).

21 On the assumption that the letter of 7 July was notice of the registration of the plan, the call option expiry date was 21 July and the put option date was 22 July. The put option expiry date was 21 August.

22 On 26 July 2006, the vendor’s solicitor sent to the purchaser’s solicitor via the Document Exchange a letter enclosing a notice of exercise of put option and two copies of the required contract. The contract document was dated 25 July and required completion on 15 August 2006.

23 The purchaser’s solicitor disputed that the put option had been duly exercised, the vendor’s solicitor claimed otherwise, a notice to complete was served and in due course, the dispute was brought before the Court.

24 The two issues on this separate question are:

(a) Did the defendant on 7 July 2006, give notice of the registration of the Plan?

(b) Did the defendant give notice of exercise of the put option on 26 July 2006?

25 The two sub-questions are inter-related and depend on the proper construction of clause 11 of the deed.

26 The basal problem is that clause 11, which appears to be couched in mandatory language, may constitute the exclusive method of giving notice. There was non-compliance with cl 11 in that notices were given to the purchaser’s solicitor not the purchaser itself. The vital question is whether this is sufficient.

27 The word “Party” is not defined in the deed. There is no mention of a party’s agent, except in cl 10.3. Clause 1.2(f) of the deed provides that a “reference to any party to this Deed or any other agreement or document includes the party’s successors and permitted assigns”. Again, there is no express mention of a party’s agent. Clause 10.3 provides that if the form of contract is altered, it is to be forwarded “to the Purchaser or its solicitor” and that “the Purchaser or its solicitor as agent for the Vendor” must substitute the amended document for the original.

28 The schedule to the deed contains a pro forma contract in the 2000 edition of the standard form for contracts for the sale of land. This form prominently mentions the parties’ solicitors and provides for them to receive documents. However, apart from matters which fall under cl 1.2(r), I do not consider that there is any warrant for using the schedule to construe the deed itself, especially in view of the stricture repeated more than once that the deed is the sole agreement between the parties.

29 The basic issue is whether the parties, by specifying a particular method of acceptance or notification, have intended that that be the sole method of acceptance or notification or whether they have merely indicated an acceptable method and would be prepared to accept any other method that was not less speedy.

30 The problem first seems to have surfaced with cases in the 19th century over offers made indicating that acceptance be by telegram or return messenger. The problem has been considered so often since then that the major texts on contract all deal with it; see eg Chitty, 29th ed 2-065, Treitel 11th ed pp 30-1, Anson 28th ed p 49 and Carter & Harland 4th ed [228].

31 The usual dilemma for a court is whether the offeror's stipulation that the acceptance be communicated in a particular way was meant to require that exact method of communication or whether the offeror was merely indicating a mode which would be quick so that any method equally expeditious would suffice.

32 Apart from cases involving options, courts lean to the construction that the specified mode is not mandatory. Provisions for service of notice are interpreted as facultative only, allowing the party who wishes to give notice to choose to do so in the manner prescribed; see the texts referred to above and FAI General Insurance Company Ltd v Parras (2002) 55 NSWLR 498, 507-8 and cases there cited.

33 Mr Smith for the plaintiff submitted that this case falls within “the class of contract” referred to in Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1970] 1 WLR 241, 246 where Buckley J dealt with a condition which stipulated a particular manner in which acceptance of an offer could be communicated. His Lordship acknowledged the general approach noted above, but said that “it may be that an offeror, who by the terms of his offer insists upon acceptance in a particular manner, is entitled to insist that he is not bound unless acceptance is effected or communicated in that precise way”.

34 As Chitty points out, in option cases, courts tend to hold that the grantor does intend that there shall be strict and exact compliance with the prescribed procedure for exercise: see Holwell Securities Ltd v Hughes [1974] 1 WLR 155.

35 However, the present problem must be solved by construing this particular deed and not by any preconceived formula. I have spent a brief time discussing some of the approaches of judges in other cases as these are instructive as to the way in which such cases should be considered.

36 Mr Smith contended that cl 11 of the deed was mandatory and was to be treated as an exclusive means for giving service under the deed. Counsel’s reasons for this submission are essentially as follows:

a) The Call and Put Options were expressly required to be accepted “strictly in accordance with the provisions of this Deed”: cll 4.2 and 8.2. Notice of the registration of the Plan and of exercise of an option was to be given under cll 7 and 9 where satisfaction of cll 4.2 and 8.2 required compliance with cl 11.

b) Generally speaking, the parties are taken to have accepted the obligation to be strictly bound by the provisions in the option as to the method of valid exercise, see eg Tonitto v Bassal (1992) 28 NSWLR 564, 574.

c) Unless cl 11 was read as the exclusive method of giving notice, the express requirement for strict adherence in cll 4.2 and 8.2 would be otiose. The phrase “strictly in accordance with the provisions of this Deed” refers to all the provisions in the Deed and not just cl 11. It does not necessarily follow that if cl 11 is facultative, rather than mandatory, the phrase “strictly in accordance with the provisions of this Deed” is otiose in the sense of having no practical result or being superfluous. The phrase clearly refers the reader to the whole of the Deed. It is the Deed as a whole which must be strictly adhered to.

d) It is significant that Special Condition 30.4 of the Contract in the Schedule is included to allow notices between solicitors yet there is no corresponding provision in the deed.

e) The drafter used the phrase “the Vendor or its agent” in cl 9.1 when referring to service on the Purchaser, but did not use the phrase “or its agent” in cl 11.1. If service on an agent were permitted, such a phrase would surely have been included in cl 11.1.

f) The commercial objects and aims of the Deed support the construction of cl 11 as exclusive because the implementation of the Options depended upon strict compliance with the provisions of the Deed. In other words, the whole point of the Options Deed centres around the concept of strict compliance.

g) The use of the word “must” in cl 11 was significant .

37 Counsel acknowledged that there were cases where, despite the general rule as to strict compliance with the provision in an option for exercise, some flexibility had been allowed such as Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617, where Wootten J said at 623:

“in the absence of a very clear indication of a contrary intention, it would not be reasonable to construe a provision for service by registered mail as excluding the giving of notice by other equally expeditious means which do in fact result in the actual receipt of the notice by the offeror”.

38 Mr Smith put that the terms of the deed did not permit such a view to be taken of the present transaction and that the Spectra case was distinguishable.

39 Mr Darke, for the defendant, put that both the notice of registration of the plan and the notice of exercise of the option were valid or invalid, they stood or fell together.

40 Mr Darke made a number of submissions as to why, on the true construction of the deed, the communications to the plaintiff’s solicitor did comply with the deed. I believe that what he put may be usefully considered under the six heads set out in the following paragraph.

41 Counsel put that (a) strict compliance with cl 11 was not required; (b) in any event what occurred did comply with cl 11; (c) it was wrong to put too much emphasis on the word "must" in the deed, particularly in cl 11.2; (d) failure to comply with cl 11 sounded only in damages; (e) that commercial common sense in looking at the intention of the contracting parties led one away from an over-technical construction of the deed; and (f) as there was no time limit for the notification of the registration of the plan, the only consequence of a win for the plaintiff on the point would be that notice could now be given.

42 I will deal with these submissions one by one.

43 Submission (a) depends on me departing from the general rule that provisions in options as to their exercise must be strictly observed.

44 Mr Darke cites the Spectra case. He did not cite two other cases apparently in point so that Mr Smith felt obliged to distinguish them, namely, Young v Lamb (2001) 10 BPR 18,553 and Carter v Schmitt [2003] NSWSC 1166.

45 In Young v Lamb, a letter giving notice of intention to exercise an option to renew a commercial lease was served on the lessor’s agent. The agreement was silent on whether the definition of “lessor” included agent. The agreement did not provide an address for the lessor for the purpose of service.

46 Stein JA held that as the agreement did not expressly preclude service on the lessor’s agent, since the lessor’s address was not provided in the agreement, and since the ordinary principles of agency applied, it made perfect sense that service on the lessor’s agent, instead of the lessor, was valid: Mason P and Hodgson JA agreed.

47 However, I agree with Mr Smith that this case is distinguishable because of the precise terms of cl 11, particularly the fact that the purchaser’s address was provided in the deed and therefore the proper construction of cl 11 is that service on anybody else at any other address was not valid.

48 In Carter v Schmitt, an option to renew a share farming agreement between the farm owner and a tenant could be renewed by the tenant giving “the owner” notice in writing. The agreement did not contain any address for service and did not state that “owner” also referred to agent. The tenant’s solicitor gave notice in writing by letter to the owner’s solicitor. The owner claimed that notice was not validly served.

49 In construing the relevant provisions of the agreement, Smart AJ applied the test formulated by Dixon CJ in Ballas v Theophilos (No 2) (1957) 98 CLR 193 – was the letter a clear and unequivocal election to renew the agreement?

50 His Honour considered that in the course of dealing between the owner and tenant in regard to important matters arising out of the share farming agreement, they corresponded via their respective solicitors. In light of this and the fact that the agreement did not expressly preclude service on the owner’s solicitor, the answer was that notice was validly served if served on the owner’s solicitor as duly authorised agent.

51 Again, I must agree with Mr Smith that the case is distinguishable in the light of the express provisions of cl 11. All that the case really says is that in the absence of clear provisions in the controlling document, service of a notice on the usual agent of the other party for the receipt of communications suffices. That is not the present case.

52 In my view, the proper construction of cl 11 of the deed requires strict compliance. I thus reject submission (a).

53 Submission (b) is to a degree based on similar thinking to that behind submission (a). However, further points are made which can be summarized by saying that clause 1.2(f) notes that “Party” includes a party’s successors and assigns; clause 1.2(g) notes that just because something is mentioned after the word “includes” is not to be taken as limiting what else might be included. Cases such as Young v Lamb show that normally a party’s usual agent for communication is virtually the same as the party, therefore service on an agent is in order.

54 I cannot accept this submission. Clause 1.2(g) only operates so as to negate an inference that might be drawn that the matter after the word "includes" might be an exhaustive statement. It does not operate so that one can read in additional words to the document. A fortiori is this so in a document which contains a clause such as cl 15.1 that the deed constitutes the entire agreement.

55 Another reason backing this submission is that if cl 11.2 is mandatory, the requirement for the notice being in writing was otiose. This is correct, but it is a relatively minor point in a host of points most going in the other direction.

56 As to (c), the ordinary meaning of "must" is that something is imperative or mandatory. However, it is true, as Mr Darke points out, that the word may sometimes have a weaker meaning. This is, of course, the case, but mere use of this verb or the equivalent “shall” does not on its own necessarily make the relevant clause mandatory: see FAI v Parras.

57 As Mr Darke submits, the High Court in George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387, 394-5 took the word in a weaker sense when finding that a takeover offer was accepted when documents were received notwithstanding that the offer said they "must" be posted.

58 I do not consider that this decision helps Mr Darke’s cause. The document before the High Court in the George Hudson case had to be construed as a whole and in doing so, the Court had to discount the word "must".

59 Submission (d) can be quickly dealt with. It is possible to construe words such as those in cl 11 as only sounding in damages. Hodgson JA explored this possibility in FAI v Parras at [21]-[23] and considered that this might be a solution to the present type of case where to construe a clause otherwise would clearly give a commercially unjust result.

60 In the present case, it is not possible to adopt this construction. The clauses dealing with the exercise of the option and giving of notices are not couched in terms of promises to do something. They are clearly part of the procedure for the due exercise of the options. The procedure was deliberately adopted to provide for certainty in a complex and expensive transaction. I thus reject this submission.

61 It is tempting to yield to submission (e) as one can find a considerable amount of dicta which seem to support it. Thus Santow J said in Bava Holdings Pty Limited v Pando Holdings Pty Ltd (1998) 9 BPR 16,295 at 16,304:

"[I]n construing notices with some inaccuracy, obvious error or looseness of formal expression, the courts have simply asked how would the recipient, as a reasonable commercial person, be taken to have understood the intent of the notice”.

62 Again, it is fundamental to construction of contractual provisions that “one construes a contract so as not to ‘defeat its main object and intent’ ” (see eg FAI v Parras at [63]). The main object and intent of the Deed was the facilitation of the development of unregistered land at Horsley Park. It is put that it would be contrary to the fundamental purpose of the deed if the plaintiff were to be permitted to claim defective service, especially when it had in fact received the notice in an equally expeditious manner and when a purposive construction of the deed allows service in this manner.

63 Indeed, the main object was to be achieved through the creation of a right to sell (on the part of the vendor) and to buy (on the part of purchaser) the land on terms and conditions which had already been agreed upon. The aim was to minimise the risk that the sale would not proceed. For the purchaser to be able to avoid its obligation under the deed for the reason that it had not received notice strictly in accordance with cl 11, even though in reality it did receive notice on or shortly after its solicitor received it, is absurd and contrary to both business efficacy and the whole purpose of the deed.

64 The submission proceeds that the test is, as suggested in Carter v Schmitt, what a reasonable commercially-minded person would have understood the intended purpose of the defendant’s letter of 7 July 2006 to be. It is put that the facts show that it was taken by everyone to be intended to be notice duly served on the purchaser via its solicitors as duly authorised agent.

65 The plaintiff admits to receiving the notice “on or soon after” the day their solicitor received it (Tender Bundle p 17). It is clear from the material in the Tender Bundle that the usual way for the plaintiff and the defendant to correspond with each other in regard to important matters arising out of the deed was via their respective solicitors (TB pp 5-14).

66 Moreover, the plaintiff can hardly be said to have been disadvantaged by service of the notice on its solicitor via the usual course of dealing when the plaintiff actually received the notice shortly thereafter. Further, the service of notice on the plaintiff’s solicitor was as expeditious as service on the plaintiff itself.

67 Unfortunately, these pleas of reasonableness do not avail where the parties have drawn up a strict agreement to govern their relationship which deals with the situation that has arisen.

68 It must be noted that no argument was put that some estoppel operated to prevent the plaintiff from asserting that the letter of 7 July 2006 was not a notice as required by the deed. Neither was there any submission that the plaintiff had held out its solicitor as an authorised recipient of communication; cf Magripilis v Baird [1926] St R Qd 89 (HC) and CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588.

69 Submission (f) might possibly be correct, though cl 16 of the deed providing for time being of the essence in all respects tells against it. However, this point was not fully debated before me and, even if it was correct, it would not affect the answer to the separate question.

70 To sum up, the deed in question was carefully drawn up and executed by the parties with the intention that their deal, involving a large amount of money would be conducted in a certain way. The deed specifies that there are to be strict time limits, with time of the essence and provides for service of documents in a way where there can be little dispute as to from what point those time periods are to commence.

71 Moreover, although not always expressed explicitly, there appear to be distinctions between what can be done with a solicitor and what can only be done with the purchaser.

72 These matters and those of the submissions of Mr Smith which I have noted with approval during these reasons lead me to the view that strict observance of the provisions of cl 11 was necessary.

73 For the reasons already given, with both the notice of registration of plan and notice of exercise of put option, cl 11 was not observed.

74 Accordingly, I must answer the separate question, “No”.

75 I will stand the matter over for mention before me at 9:30 am on 3 April 2007 for formal short minutes to be brought in. I assume that the defendant will need to pay the costs of the separate question and that the short minutes will provide for the further hearing of the case if necessary. If the nominated date is inconvenient, it can, by consent, be changed provided my Associate is notified during the preceding week.

*********************