Hagerty v Hills Central Pty Ltd

[2018] NSWCA 200

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Hagerty v Hills Central Pty Ltd [2018] NSWCA 200

Hearing dates:

31 August 2018

Decision date:

11 September 2018

Before:

McColl JA at [1];
Macfarlan JA at [2];
Leeming JA at [3]

Decision:

1. Appeal allowed.

 

2. Set aside the judgment and orders of the Court below dated 31 May 2018 and 18 July 2018.

 

3. Caveats AK6322973 and AM951778 be removed from the register held under the Real Property Act 1900 (NSW).

 4. The respondent pay the appellants’ costs at first instance and in this Court.

Catchwords:

REAL PROPERTY – option – whether option validly exercised – option deed required provision of contract for sale of land with time for completion 42 days thereafter – respondent purportedly exercised option – respondent's executed contract for sale left date of completion blank – respondent's covering letter requested appellants insert a completion date of 192 days from date of contract – consideration of applicable principles in such cases – proper construction of option deed – whether documents purporting to exercise option complied with option deed – option not validly exercised – appeal allowed

Legislation Cited:

Real Property Act 1900 (NSW)

Cases Cited:

Ballas v Theophilos [No 2] (1957) 98 CLR 193; [1957] HCA 90
Bell Bros Pty Ltd & Stewart v Sarich [1971] WAR 157
Boreland v Docker [2007] NSWCA 94; (2007) NSW ConvR 56-182
Bowman v Durham Holdings Pty Ltd (1973) 131 CLR 8; [1973] HCA 55
Carter v Hyde (1923) 33 CLR 115; [1923] HCA 36
Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20; [1952] HCA 26
Comdox v Robins [2009] NSWSC 367
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12
Fatimi Pty Ltd v Bryant [2002] NSWSC 750
George v Cluning (1979) 28 ALR 57
Hills Central Pty Limited v Hagerty [2018] NSWSC 789
Hills Central Pty Limited v Hagerty (No 2) [2018] NSWSC 1109
Hinds v Randell (1961) 177 EG 733
Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749
Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85
Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673
Quadling v Robinson (1976) 137 CLR 192; [1976] HCA 31
Tonitto v Bassal (1992) 28 NSWLR 564
Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd [2010] WASCA 229
William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277

Texts Cited:

None

Category:

Principal judgment

Parties:

Anthony Gerard Hagerty & Catherine Elizabeth Hagerty as Executors of the Estate of the late Gladys Delores Hagerty (Appellants)
Hills Central Pty Ltd (Respondent)

Representation:

Counsel:

 

G Farland and M Keene (Appellants)
M Ashhurst SC and G P Gee (Respondent)

 

Solicitors:

  Lamrocks Solicitors (Appellants)
Blackstone Waterhouse Lawyers (Respondent)

File Number(s):

2018/193275

Publication restriction:

None

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2018] NSWSC 789

Date of Decision:

31 May 2018

Before:

Slattery J

File Number(s):

2017/258219

Judgment

1. McCOLL JA: I agree with Leeming JA’s reasons and the orders his Honour proposes.

2. MACFARLAN JA: I agree with Leeming JA.

3. LEEMING JA: The short question in this ably argued appeal is whether, as the primary judge held, the respondent validly exercised an option to acquire land owned by the appellants as executors of their late mother’s deceased estate. The Deed granting the option required delivery, inter alia, of two executed contracts for the sale of land and provided for a completion date of 42 days after contract. In purportedly exercising the option, the respondent left the completion date in the executed contracts blank, and requested in the covering letter a date of completion of 192 days from the date of the contract, citing an irrelevant clause in the Deed. For the reasons that follow, I have concluded that while the position is quite finely balanced, the respondent did not validly exercise the option.

Factual and procedural background

4. There were no disputed facts, and the background may be stated concisely. The deceased parents of the appellants granted a Deed of Option in favour of Castle Hill Property Developments Pty Ltd on 5 August 2014 in respect of land at Castle Hill jointly owned by them. In the following five months, first the appellants’ father then their mother passed away, leaving the land as an asset of the unadministered estate of the mother. There has been a grant of probate, and it is accepted that the Deed binds the executors.

The relevant provisions of the Deed

5. Clause 1 of the Deed provided as follows:

“1. Option

1.1 In consideration of the sum specified in Item 6 payable by the Grantee to the Grantor on the date hereof (the receipt of which the Grantor acknowledges) (‘Option Fee’) the Grantor grants to the Grantee (or its nominee) an option to purchase the Property described in the form of Contract attached to this Deed (‘Contract’) at the price and on the conditions specified in the Contract (‘Option’).

1.2 This Option constitutes an irrevocable offer by the Grantor to enter into a binding agreement for the sale of the Property, which may be accepted strictly in accordance with the provisions of this Deed, otherwise the Option and this offer shall lapse.

1.3 This Option is binding on the Grantors and in the event of their death on their estates.

1.4 The benefit of this Option may be assigned and the Option may be exercised by the Grantee or by his estate or assignee.

1.5 The Grantee may appoint as his nominee to exercise this Option one or more persons and corporations and may include himself as one of the nominees.”

6. It was uncontroversial that there was no assignment, and that Castle Hill Property Developments nominated the respondent to exercise the option. It was also uncontroversial that the effect of the nomination of the respondent was that if the option were validly exercised, a contract came into existence between the appellants and the respondent nominee (this is the third category of nomination provisions in an option enumerated by Burt J in Bell Bros Pty Ltd & Stewart v Sarich [1971] WAR 157 at 158–159, the first being where exercise of the option gives rise to a promise beneficially owned by the grantee, and the second where the promise is held by the grantee on trust for the nominee).

7. The Deed attached a standard form of contract for the sale of land which was partially completed (including as to the identity of the vendor, the land, and that the sale was by way of vacant possession) but left blank the identity of the purchaser, the contract date, the completion date, the price and the deposit. The Deed made provision for the completion of those items, for the most part in cl 2, which was headed “Exercise of Option” and was central to both parties’ submissions. That clause relevantly provided:

“2. Exercise of Option

2.1. This Option may be exercised at any time after 12 months from the date of this Deed and before 4.00pm on the date specified in Item 7, as follows:

2.1.1 By delivery of the following:

(i) Written notice of exercise of the Option;

(ii) Two copies of the Contract (prepared by the Grantee) duly executed by the Grantee;

(iii) A cheque for the balance of 10% Deposit payable under this Contract, in favour of the stakeholder named in the Contract.

2.1.2 If the benefit of this Option shall have been assigned, the Notice of Exercise of Option and the two copies of the Contract shall be signed by the assignee. Evidence of the assignment shall also be delivered at the time of exercise of the Option. The Assignee shall be the Purchaser named in the Contract.

2.1.3 Where the Option is exercised on behalf of a nominee, the Notice of Exercise of Option and the two copies of the Contract shall be signed by the nominee. There shall also be delivered at the time of exercise of the Option a form of nomination signed by the Grantee (or by the person entitled to make the nomination at that date). The Nominee shall be the Purchaser named in the Contract.

2.1.4. The documents referred to in paragraphs 2.1.1, 2.1.2, or 2.1.3 (if applicable) and the cheque shall be delivered personally to the Grantors at the address specified in Item 5 or to the office of the solicitors specified in Item 10 (including in the event of either of the Grantors prior death).

2.2 On delivery of the Notice of Exercise of Option (and the other documents and the cheque) in accordance with clause 2, the party bound by the Option at that date and the party in whose favour it has been exercised become immediately bound as Vendor and as Purchaser respectively under a Contract for Sale of Land in accordance with the terms of the Contract. The Grantor (on behalf of themselves and the persons which may be bound by the Option at its date of exercise) covenants and agrees that the vendor will execute one of the two copies of the Contract delivered on exercise of the Option promptly and forward to [a law firm address] an executed copy of the Contract, within 3 days after service of the Notice of Exercise of Option.

2.3 The Purchase Price to be specified in the Contract upon exercise of this Option shall be calculated in accordance with the following table:

[The table specified different purchase prices depending upon the permissible height control in the Local Environmental Plan applicable to the Property ranging from $1,961,520 to $4,926,090.]

2.4 The Deposit to be specified in the Contract upon exercise of this Option shall be 10% of the purchase price.”

8. The date specified in Item 7 of the Schedule was “24 months from the date of this Deed”. Thus cl 2 permitted the respondent to exercise the option within a period commencing 12 months after 5 August 2014 and concluding 24 months thereafter. However, cl 3 permitted Castle Hill Property Developments to extend the period in which the option might be exercised for a further 12 months upon payment of an “Option Extension Fee”, in which case Item 7 became “36 months from the date of this Deed”. The extension occurred, and there is no dispute as to its validity. Hence, the period during which the option might be exercised was 3 years from 5 August 2014.

9. It will be seen that cl 2 identified various of the items left blank in the draft contract of sale of land to be specified, including the price (in accordance with the table in cl 2.3), the deposit (in accordance with cl 2.4) and the identity of the purchaser (depending upon whether the rights of assignment or nomination had been exercised). Clause 2 also provided that the purchaser must sign or execute the contract (in cl 2.1.1(ii), 2.1.2 and 2.1.3). However, cl 2 made no reference to the completion date.

10. The time for completion in the event the option was exercised was governed by cll 8 and 9. Those clauses provided as follows:

“8. Grantor’s Notice

8.1 Notwithstanding any other provision of this Deed, the Grantor may, by serving upon the Grantee a notice in writing (the “Grantor’s Notice”) specify a new date to be inserted in Item 7 as the Option Exercise Date and in Item 9 as the Extended Option Exercise Date (the “New Option Exercise Date”).

8.2 The Grantor’s Notice may not be served by the Grantor within 12 months of the date of this Deed.

8.3 The New Option Exercise Date specified in the Grantor’s Notice may not be earlier than 30 days from the date of service of the Grantor’s Notice.

9. Completion Date

9.1 If the Grantor issues the Grantor’s Notice specified in clause 8.1 prior to exercise of this Option by the Grantee, the Completion Date to be specified on the front page of the contract will be the date 192 days from the date of the Contract.

9.2 If the Grantor does not issue the Notice specified in clause 8.1 prior to exercise of this Option by the Grantee, the Completion Date to be specified on the front page of the contract will be the date 42 days from the date of the Contract.”

11. It was common ground that no Grantor’s Notice was ever served. The evident intent of cl 8.1 was to give the landowners the power to alter the period of time within which the option might be exercised. The new period of time was unspecified but could not be earlier than 30 days from the date of service of the Grantor’s Notice. The most likely occasion for the exercise of the power would be if the landowners wished to sell the property to another purchaser. By issuing a notice, they could put the Grantee to an election either to exercise or forego its rights within the following 30 days. In the event that the Grantee exercised the option following receipt of the Grantor’s Notice, the Grantee had the benefit of the extended period of completion in cl 9.1, namely, 192 days rather than the 42 days specified in cl 9.2.

The purported exercise of the option

12. By a series of documents supplied under covering letter dated 3 August 2017, sent by email on that date and personally delivered the following day, the respondent purported to exercise the option. The covering letter, addressed to the firm of solicitors specified in the Deed, provided as follows:

“Dear Sirs

Re: Hagerty to Hills Central Pty Ltd

Property: 24 Old Castle Hill Road, Castle Hill

We act for Hills Central Pty Ltd. Hills Central Pty Ltd as the nominated Grantee under the Deed of Option to Purchase Land between Anthony Bernard Hagerty and Gladys Delores Hagerty and Castle Hill Property Developments Pty Ltd dated 5 August 2014 [Deed].

We enclose:

1. Written Notice of the Nomination Notice;

2. Written Notice of exercise of the Option;

3. Two copies of the Contract duly executed by the nominating Grantee; and

4. Cheque for $196,152, being the balance of 10% deposit payable under the contract in favour of the stakeholder named in the contracts.

We request that you exchange the contracts and that you enter the Completion Date on the front of the contract to be 192 days from the date of the contract pursuant to clause 9.1 of the Deed.

Please call me if you have any questions or you wish me to expand on or clarify any issues raised in this letter.

I look forward to your reply.”

13. The critical words for present purposes were the “request” in the third paragraph of the letter for the appellants to enter the completion date on the front page of the contract as 192 days from the date of the contract. The respondent did not contend that in some fashion 192 days, as opposed to 42 days, was the agreed completion date, or that cl 9.1 applied.

14. The letter enclosed an executed notice of exercise of option and nomination notice, unequivocally confirming that the respondent had been nominated as the purchaser. A cheque in the correct amount was enclosed, as were two partly executed contracts for the sale of land. The contracts were in the form which had been annexed to the Deed, with the vendor’s solicitor, the name of the purchaser and its address and contact details, the purchase price and deposit and balance completed. Both contracts were executed by the respondent.

15. Left blank in both contracts were the completion date and the contract date on the front page of the contract.

16. Accordingly, the position was that there was a timely purported exercise of the option, but which was arguably deficient insofar as (a) the completion date in the executed contracts for sale had been left blank, and (b) the respondent had requested in the covering letter that the appellants insert a date in 192 days time, citing an inapplicable clause.

Events subsequent to the purported exercise of the option

17. The primary judge recorded that on 11 August 2017 the appellants’ solicitors returned the cheque, asserting that the option “was not exercised in accordance with the Deed of Option and as such the option has now lapsed”, and that the respondent “no longer has a caveatable interest” in the property.

18. Proceedings were commenced shortly thereafter, and there was a final hearing on 8 March 2018. At that hearing, the evidence was uncontroversial and almost entirely documentary. There was brief, uncontroverted, testimonial evidence concerning a conversation between an in-house legal counsel for the respondent and the appellants’ (then) solicitors, as to whether they acted for the grantor and the name of the firm’s trust account, and advised that “Hills Central are exercising the option to purchase”. Neither party suggested anything turned on that. That approach was correct. If the documents supplied to the appellants were ineffective to exercise the option, a statement by one agent to another about its imminent exercise did not improve the position.

19. The primary judge granted relief by way of a declaration and order for specific performance on 31 May 2018, for reasons given on that date: Hills Central Pty Limited v Hagerty [2018] NSWSC 789. There were difficulties in the working out of the order of specific performance, leading to a further hearing and subsequent judgment on 18 July 2018: Hills Central Pty Limited v Hagerty (No 2) [2018] NSWSC 1109. By that time, the appellants had already filed a notice of appeal. Their amended notice of appeal now seeks also to set aside orders made on 18 July 2018. However, no additional or separate point is raised in relation to the second hearing on the subsequent judgment; the only matter argued on appeal was the validity of the purported exercise of the option. Accordingly, there is no occasion to summarise the subsequent events, save to note that the primary judge granted short interim relief pending appeal, which was extended until further order by Gleeson JA on 23 July 2018.

Reasons of the primary judge

20. The dispositive reasons of the primary judge, which are at [42]–[76], are divided into six points. The first four address the construction of the Deed, while the fifth and sixth address what was conveyed by the documents supplied on 3 and 4 August 2017.

Construction of the Deed

21. The first point was directed to there being no express requirement in cl 2 for the completion date to be inserted on the front page of the contract for sale of land, in contradistinction with the purchase price, deposit and identity of the purchaser, which were express obligations within cl 2, and that the burden of preparing the contract rested upon the Grantee, rather than the Nominee.

22. The second was that cl 9, unlike cl 2, was regarded by his Honour to be materially different, because of the omission of the words “upon exercise of this Option”, which were to be found in cll 2.3 and 2.4. The primary judge said that “[t]his difference in language is not accidental”: at [50]. His Honour said at [51] that it was “logical that this detail c[ould] be left until later”, because the law recognised that a valid “open contract” for the sale of land provided the parties are agreed to the identities of vendor and purchaser, the description of the land and the purchase price.

23. The third was that cl 9 did not depend on the acts of the parties, but, rather, gave a precise, binary outcome (either 42 or 192 days from the date of contract) for the time for completion, the choice being dependent upon an objectively verifiable fact (namely, whether a Grantor’s Notice had been served). His Honour added that there might also be an important commercial purpose, insofar as a nominee might not know the correct completion date because it may not have received the Grantor’s Notice.

24. The fourth was that the parties were immediately bound by cl 2.2 upon the exercise of the option, and that an order for specific performance was available, notwithstanding that the date of completion might not have been completed. His Honour noted at [57] that the time for completion was not an essential term, and that the contract could be specifically enforced without a specified completion date and without serving a notice to complete.

25. Thus his Honour concluded that as a matter of construction the Deed did not require a completion date to be inserted in the executed contracts for sale when the option was exercised.

The documents purporting to exercise the option

26. The fifth and sixth points were directed to what was conveyed by the documents purporting to exercise the option. The fifth addressed the “request” in the covering letter to insert an incorrect completion date. His Honour rejected a submission that the covering letter in substance amounted to a counter-offer, stating at [60]–[62]:

“But in my view, the 3 August 2017 covering letter requesting insertion of a particular date therefore does not conflict with the contemplated operation of the terms of the Deed of Option. For the reasons earlier given, the option can be exercised without the Completion Date being specified in the Contract.

Moreover, the covering letter is couched in the language of a request, not the language of demand. The Macquarie Dictionary meaning of “request” places the covering letter in its proper context. In its relevant and primary Macquarie Dictionary meaning is:

“(1) the act of asking for something to be given, or done, esp as a favour or courtesy; solicitation or petition”.

A request is just that, a request. A request can be ignored without offence or adverse legal consequences. If the executors decided to insert a date other than the date requested, then the covering letter did not suggest any consequences would follow.”

27. The primary judge stated at [63] that by leaving the completion date blank in the contract and making a request, the respondent adopted “a reasonable way of ensuring the specification of a wrong date did not look like a counter offer”. This was said to have “reduced the risk that the exercise of the option would be construed as conditional”. His Honour added:

“And the request to put in what was an incorrect date did not contradict the validity of the mechanism to find the correct date. Hills Central is not insisting upon an incorrect date as condition of acceptance of its offer.”

28. His Honour at [64]–[65] elaborated on the consequences of the incorrect date requested in the 3 August 2017 covering letter as follows:

“[T]he Completion Date requested in the 3 August 2017 covering letter was incorrect. But the option was correctly exercised by delivery of the documents enclosed with the letter. The parties were required by Option Deed, clause 9 to subsequently specify the correct period of 42 days on the front page of the Contract. As Williams J noted in Ballas v Theophilos (No 2) (1957) 98 CLR 193; [1957] HCA 90 (‘Ballas’) at 209:

“If the intention to exercise an option is sufficiently clear, it matters not that the optionee at the same time wrongly asserts that the purchase price is £x whereas the true purchase price is £x + £y. By exercising the option he contracts to pay this price whatever it may be.”

In Quadling v Robinson (1976) 137 CLR 192; [1976] HCA 31 at [13] Barwick CJ (commenting on Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20) also said:

“Of course, it goes without saying that if an optionee purports only to exercise the option upon the footing that an erroneous construction of the option is accepted, there is no due exercise. But, as I have pointed out I am unable to read the document of 17th October 1973, read in the way it could be read most favourable to the appellant, as doing more than indicate how the optionees intend to perform the agreement which their exercise of the option, for whatever it provides, had brought into existence.”

This is not a case where Hills Central was insisting on an erroneous construction of the option.”

29. At [67], his Honour dismissed a submission that the respondent’s advancing of the wrong completion date was deliberate, the point not having been raised in cross-examination.

30. The sixth point was his Honour’s rejection of the appellants’ submission that there had been no clear and unequivocal intention to exercise the option. His Honour said that the respondent’s “conduct” taken as a whole made quite clear that Hills Central intended to exercise the option on the option date and that “this must have been clear to the executors”: at [69]. His Honour relied upon the text of the notice of exercise of option, the other contemporaneous oral communications, including the evidence that by telephone the respondent’s solicitor had said that her client was “exercising the option to purchase”, the delivery of documents to exercise the option and his Honour’s conclusion that the covering letter did not impose a condition on the acceptance of the offer and “was really designed to avoid that possible outcome”: at [73]. His Honour summarised his conclusions at [74]–[75] as follows:

“In summary, Hills Central’s compliance with the terms of the Option Deed, the conversation of 3 August 2017, and the mere request in the covering letter could only have reasonably been understood as Hills Central making an unqualified and unconditional exercise of the option.

The Court concludes for these reasons that in order to validly exercise the option, the Nominee, Hills Central, was not required to specify the Completion Date on the front page of the Contract.”

The parties’ submissions on appeal

31. Two main strands in the submissions of Mr Farland, who appeared with Mr Keene for the appellants, amounted to challenges to both aspects of the reasoning of the primary judge.

32. The first focussed on the need for strict compliance with the Deed, such that the failure to include a completion date meant that the option was not exercised. He emphasised that the Deed made express provision as to the manner of its exercise in cl 1.2, which provided that the irrevocable offer might be “accepted strictly in accordance with the provision of this Deed, otherwise the Option of this offer shall lapse”. He also advanced a series of submissions based upon the obligation to “specify” various matters in the contract for sale of land, thereby seeking to link the references to completion date in cll 9.1 and 9.2 with the other matters to be included in that contract. He stressed that the parties were “immediately” bound as vendor and purchaser upon exercise of the option, such that the contract was required to have been completed.

33. Secondly, it was said that the ultimate question was whether the recipient of the documents which were said to amount to the exercise of the option would fairly understand that that was its meaning, relying upon Carter v Hyde (1923) 33 CLR 115 at 126; [1923] HCA 36 and Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677. The effect of the request in the covering letter was that the respondent was seeking to be bound by a very different contract, in circumstances where the parties had made it quite clear that the time for completion was a matter of real significance to them.

34. Mr Ashhurst SC, who appeared with Mr Gee for the respondent, also submitted that the matter was to be analysed by reference to two issues, but the issues were somewhat different. The first was whether there had been a valid exercise of the option, and that turned upon whether there had been compliance with the matters set out in cl 2, which was headed “Exercise of Option”. He submitted that the documents enclosed under cover of the letter dated 3 August 2017 unequivocally complied with all of the requirements in cl 2 and thus were effective to exercise the option, which the blank completion date and the error in the covering letter did not undermine. In substance, this amounted to a defence of the reasoning of the primary judge.

35. The second issue was whether the statement in the covering letter requesting completion after 192 days meant that the respondent did not intend to exercise the option in its form or, alternatively, repudiated the contract which was created. He contended that neither conclusion should be drawn.

Applicable principles

36. The difficulty in a case such as this is not unfamiliar. It was described by Gibbs J in Quadling v Robinson (1976) 137 CLR 192 at 200–201; [1976] HCA 31 thus:

“[I]t is clear that the exercise of the option, to be valid, must have been absolute and unqualified and must have bound the respondents to perform the very terms set out in the option. Authority is hardly necessary to support this statement, but some of the cases are collected in the judgment of Smith J in Ballas v Theophilos [1958] VR 576, at p 581 (which was affirmed on somewhat different grounds (1957) 98 CLR 193). However, it is not always easy to determine whether the purported exercise of an option should be understood as attempting to vary the terms of the option or as intending to accept its terms without modification, notwithstanding that they may have been misdescribed, or notwithstanding that the grantee of the option may have indicated that he intends to perform the contract in a manner for which the terms of the option do not provide. Thus although a notice misstates the terms of the option which it purports to exercise, it may nevertheless amount to an unqualified and unconditional exercise of the option: see Carter v Hyde (1923) 33 CLR 115, at pp 121-122, 126, 133. On the other hand, if the grantee of an option sets out his own erroneous understanding of the option, and then purports to exercise the option as so understood, there will (speaking generally) be no effective exercise of the option: see Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20, at pp 26-27.”

37. It may be noted that this Court is in no materially different position from the primary judge. To the extent that there was testimonial evidence, it was uncontroversial, not to mention peripheral. Whether or not the option was exercised turns on the documents.

38. There may in some cases be two separate inquiries, in accordance with Mr Ashhurst’s submissions: (a) whether a contract was formed following the exercise of the option, and (b) whether that contract has been repudiated. However, everything that mattered in the present case occurred when the documents were supplied to the appellants’ solicitors. Those documents are to be considered as a whole. I do not accept that one analyses whether an option has been validly exercised by reference only to the documents sent under cover of the letter dated 3 August 2017, and only then determines whether the “request” in that letter qualifies what occurred or is repudiatory. Rather, the correct legal analysis looks at the whole of the documents supplied on 3 and 4 August 2017, and determines whether they amounted in law to a valid exercise of the option. Were authority needed, this accords with what was said by Isaacs J in Carter v Hyde (1923) 33 CLR 115 at 126; [1923] HCA 36:

“[T]he appropriate question is that of Romer J in Jones v Daniel [1894] 2 Ch at p. 335, namely, ‘Now, what would anybody when he received that letter fairly understand to be the meaning of it?’ I add, of course, ‘in the circumstances of its receipt’.”

The same point was made more recently by Buss JA, with whom Murphy JA agreed, in Whitegum Petroleum Pty Ltd v Bernadini Pty Ltd [2010] WASCA 229 at [33].

39. This difference matters. A party who proceeds on a mistaken construction of the contract, but who nonetheless is objectively regarded as willing to perform the contract on its proper construction, will not evince an intention to repudiate the contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432; [1978] HCA 12; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 at 283. But a party whose departure from the contract falls short of amounting to a repudiation may nonetheless have failed to comply with the requirements which were stipulated as necessary to bring into existence contractual obligations.

40. There are relatively few rules of general application in determining whether an option has validly been exercised. I am conscious that it has been said that “[i]t is generally accepted that effectual exercise of an option requires strict adherence to the method prescribed in the instrument creating the option”: Tonitto v Bassal (1992) 28 NSWLR 564 at 574. Such a general proposition is one of fact, not law. It reflects the fact that most professionally drafted deeds granting options specify with precision what is required for their exercise.

41. So far as I can see, the first question is, as a matter of construction, what have the parties agreed as to the requirements of the valid exercise of the rights created. The second question is whether the conduct of the person purporting to exercise the option satisfies what is required. I do not think much turns on whether the subject of the option is land, or shares, or a new lease or an extension of some intellectual property right or a grant of some other species of property or contractual right. Both questions will need to be addressed, and they are distinct. That in substance was the approach adopted by the primary judge.

42. That point was made in Boreland v Docker [2007] NSWCA 94; (2007) NSW ConvR 56-182 by Beazley JA, with whom Mason P and Ipp JA agreed, at [45]: “when seeking to determine whether an offer has been accepted, it is necessary to first construe the offer which was made.” Her Honour’s analysis at [45]–[60] reflects that approach. So too do the judgments of Mason J (with whom Aickin J agreed) and Wilson J (with whom Barwick CJ agreed) in George v Cluning (1979) 28 ALR 57 at 61–62 and 67. The same point was made by Gibbs J in Quadling v Robinson at 201 immediately following the passage reproduced above:

“It must of course depend upon the proper construction of the document by which the grantee purports to exercise an option whether it amounts to an absolute and unqualified acceptance of the rights and liabilities conditionally created by the option.”

43. The same point was made by White J, with whom Owen and Parker JJ agreed, in Phillips Fox (a firm) v Westgold Resources NL [2000] WASCA 85 at [67]:

“Whether an option is to be construed as an irrevocable offer supported by consideration or as a conditional contract, the grantee is not entitled to enforce the option, unless he has complied strictly with such of its terms as, upon the proper construction of the option, must be strictly complied with for its valid exercise”.

44. The same point was made more colourfully by Bryson AJ in Comdox v Robins [2009] NSWSC 367 at [23]:

“An option is said to be ‘a ticklish thing’, and as much case law shows, if particular means for exercising an option are intended to be essential for effective exercise, compliance with the prescribed means is necessary if the stated contractual relationship is to result. It does not matter whether observing the prescribed means is objectively important: what matters is whether the words used show that they were intended to be essential. If the language used really means that it is a condition of effective exercise of option that the notice must be on blue paper and delivered by a man in a clown suit, pink paper or a woman in a [pixie] suit will not be effective. There must be compliance; there is no allowance for taking some other non-complying course, even if it appears to achieve the same result. I do not see any value in speaking of strict compliance or exact compliance; compliance is required, the fair meaning of the contractual requirement should be understood and given effect, and undue exactitude or the creation of difficulties which the language does not yield on a fair reading are not appropriate.”

45. His Honour may have been echoing a point made by Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 776, dealing with clauses which contained rights capable of unilateral exercise in a lease:

“If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease.”

46. Bryson AJ proceeded to offer useful guidance as to how the document creating the option should be construed, insofar as it made provision for requirements that were essential for compliance:

“It is inherently likely that requirements for compliance with provisions of the existing lease, for written notice of exercise of option and for exercise within defined periods are conditions compliance with which is essential. References to means of communication and matters of details are unlikely to be intended to be essential; but they are essential if it clearly appears that they are intended to be. The Court does not spell out conditions from slight or incidental references.”

47. In some cases, such as George v Cluning, the difficulty is primarily of construing the document creating the option. In others, such as Boreland v Docker, the difficulty arises from qualifications in the purported exercise of the option. In the present case, both questions are problematic. First, there is a question of construction as to what was required to be done by the respondent in order to give rise to a binding contract for sale of land. Secondly, there is a distinct question as to the meaning to be given to the covering letter dated 3 August 2017. I deal with each in turn.

Construction of the Deed

48. The Deed did not merely provide for how the option was to be exercised. It made express provision for how scrupulously its terms were to be adhered to in the event the option were exercised. It provided that it constituted an irrevocable offer “which may be accepted strictly in accordance with the provisions of this Deed”: cl 1.2. That clause required compliance not merely with cl 2, but with other provisions of the Deed. It also provided that it was to be accepted strictly in accordance with its provisions. As Mr Farland submitted, the primary judge nowhere in his reasons brought to bear the fact that the parties had expressly agreed that strict compliance with all of the conditions of the Deed was required to exercise the option. As was observed in Mannai at 776, there can be difficulty in some cases identifying the full legal effect of the word “strictly” in clauses of this character, but I do not think it is controversial that it serves at least as an indication that the documents purporting to exercise the option are to be (in Lord Hoffmann’s words) “clear, unambiguous, incapable of misleading”. It also tells against a submission that a non-compliance ought to be regarded as immaterial.

49. Irrespective of whether the period was 42 days or 192 days, cl 9 required the “Completion Date to be specified on the front page of the Contract”. The words “to be specified” are the same words as are used in cl 2.3 (“Purchase Price to be specified”) and cl 2.4 (“Deposit to be specified”). True it is that the words in cll 2.3 and 2.4 are preceded by the words “upon exercise of this Option”, a point of distinction relied on by the primary judge in his second point. I would place little weight upon this textual distinction. Of course, the law recognises an open contract: Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20 at 25; [1952] HCA 26. However, it is in the highest degree improbable that these parties, whose Deed made elaborate provision as to time, should be regarded as not treating the time of completion as an important aspect of their bargain. Further, his Honour regarded the language “upon exercise of this Option” as “constantly reinforc[ing] the idea that Clause 2 imposes requirements entirely at the moment of exercise of the option”: at [48]. I think clearer words than have been used would be required in order for that point to carry material weight. “Upon” has a variety of meanings: it may mean “before”, “simultaneously with” or “after” and will take its meaning from the context, as Stephen J observed in Bowman v Durham Holdings Pty Ltd (1973) 131 CLR 8 at 16; [1973] HCA 55, and the real question is the significance to be given to the different wording in cl 9. In short, I think the natural meaning of cl 1.2 picks up the obligation in cl 9, and I would give less weight than the primary judge to its location or the absence of the words “upon exercise of this Option”.

48. That said, to anticipate the analysis of the second question, it was common ground that an immaterial departure from what was required would not vitiate the purported exercise of the option. What is “immaterial” is itself a conclusion, reached from analysis of the legal meaning of the Deed and the significance of the departure. There is a finely balanced question whether merely leaving the completion date blank but in all other respects complying with the Deed would be an effective exercise of the option. I incline to the view that that would be an immaterial non-compliance, notwithstanding the “strict” acceptance required by cl 1.2. If the option were exercised, the parties were bound, given the absence of any Grantor’s Notice, to a contract for sale of land with a completion date of 42 days later. If that date were left blank, I incline to the view that the vendors were impliedly authorised to complete the completion date by inserting the date to which they were already contractually bound.

49. Against this, the appellants submitted that they were not authorised to insert the completion date. Why not? On this hypothesis, the respondent had placed in the hands of the appellants a partly completed document capable of supporting an order for specific performance. There is no suggestion, on this hypothesis, of the document being held in escrow. I see no need to identify a contractual power to complete the contract for sale so as to accord with the obligation in the Deed, and if that be wrong, I see little standing in the way of an implied term authorising the appellants from completing what the respondent had left blank.

50. However, in light of the second issue, it is not necessary to reach a final conclusion on what would have happened if the respondent had supplied the documents without the covering letter.

Construction of the documents purporting to exercise the option

53. Care must be taken in relying on passages taken from other decisions in other cases. Thus one may be led into error if sentences taken from individual cases are transplanted into a new context, and applied as if they were propositions of law. One example mentioned during the hearing illustrates the danger. In Ballas v Theophilos [No 2] (1957) 98 CLR 193 at 209; [1957] HCA 90, Williams J said:

“All that the plaintiff had to do in the present case in order to exercise the option was to notify the executrix of the deceased partner within due time that he was exercising the option. If he had done this, the relationship of purchaser and vendor would have been created between the parties and the purchase price would have been the price properly ascertained in accordance with the partnership agreement. The question what was the true purchase price would arise if the vendor refused to accept the amount tendered by the purchaser. Even if the purchaser had tendered the wrong amount, he could still in a suit for specific performance obtain a decree if he was ready and willing to pay what was found to be the true purchase price by the court: Berners v Fleming (1925) Ch. 264. If the intention to exercise an option is sufficiently clear, it matters not that the optionee at the same time wrongly asserts that the purchase price is £x whereas the true purchase price is £x + £y. By exercising the option he contracts to pay this price whatever it may be.”

54. The primary judge reproduced the last two sentences at [64]. But in Ballas v Theophilos [No 2], the option (to buy out a partnership interest) was to be exercised merely by giving notice. The price in all likelihood could not possibly have been determined at the time the option was exercised, because it turned on an amount stated in the balance sheet, plus a share of undrawn profits, plus an amount representing goodwill which, if not agreed, was to be determined by a bank manager: see at 195. And the main issue in Ballas v Theophilos [No 2] was whether the option had been exercised in time (the clause in the partnership deed creating the option made no provision for when it was exercised). Hence, not only was the passage in Williams J’s reasons cited by the primary judge obiter, it was also a very different case. In that case, not only did the partnership deed not specify the exercise price, but it contemplated the need to reach agreement as to price with a fallback mechanism to determine it.

55. It is easy to see why Williams J’s example of the grantee wrongly asserting a lower price did not stand in the way of the valid exercise of the option in light of the facts of Ballas v Theophilos [No 2]. The position would be very different if the exercise price had been fixed and the parties had agreed that the manner of exercise of the option required the grantee to undertake to pay that price (as occurred, for example, in Hinds v Randell (1961) 177 EG 733, where Wilberforce J treated a minor mistake as to rent as a failure to exercise the option in a lease).

56. The leading judgment in Ballas v Theophilos [No 2] is that of Dixon CJ, with whom the third member of the Court, McTiernan J, agreed. The Chief Justice said at 196:

“Clearly enough, however, it was the business of the plaintiff to exercise the option. The clause contains no express provision saying how he is to do it and any definitive communication of an election would suffice. But it was necessary that the communication should express clearly and unequivocally the fact that the surviving partner, the plaintiff, then and there elected to acquire the deceased's interest upon the terms of the clause.”

57. To similar effect, Williams J said at 210:

“If the words quoted from the letter of 7th June 1954 should be read as a clear and definite intimation to the defendant's solicitors that the plaintiff was thereby intending to exercise the option , this would be the end of the matter, and in deciding whether such an intimation had been given the question would be, as Isaacs J said in Carter v Hyde (1923) 33 CLR 115 (after referring to Jones v Daniel (1894) 2 Ch 332 at p 335) ‘Now, what would anybody when he received that letter fairly understand to be the meaning of it . . . in the circumstances of its receipt’?”

58. Returning to the facts of the present case, true it is that the letter dated 3 August 2017 is expressed in the language of a polite request. However, I think it is tolerably clear that the recipient would understand the respondent to be saying that it would pay the balance of the purchase price, and would obtain title to the land, not in 42 days, but in 192 days. It is not possible to isolate the covering letter from the document it enclosed. The bundle of documents is to be read together, the request is prominent, and moreover, the covering letter makes it plain that the omission to specify the completion date in the contract was deliberate.

59. Contrary to what the primary judge said at [61], I do not agree that invoking a dictionary definition of “request” assists the analysis. Words employing the language of a request can, depending upon their context, have contractual force. A diner who requests a rare steak has cause to complain if the meat is overcooked; although framed as a request, the diner’s selection was contractual (indeed, the words of request are, revealingly, regularly described as placing an “order”). Further, the language of request can effect a dealing with property. As Lord Macnaghten famously said in William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462:

“An equitable assignment does not always take that form [viz, use the language of assignment]. It may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person.”

60. Contrary to the reasons of the primary judge, it does not follow, either as a matter of ordinary English, or as a matter of law, that in all cases “a request can be ignored without offence or adverse legal consequences”.

61. The politely worded language of the covering letter, which, given its placement and content could scarcely be overlooked by the recipient, is important for what it was proposing, namely, a regime materially different from that in the Deed. It is also significant for what was left unsaid, namely, the absence of any suggestion that the unpaid balance of $1,765,368 would be provided within 42 days on settlement.

62. The letter dated 3 August 2017 and the documents provided with it are to be read together. Together they fall short of a clear and unequivocal acceptance to be bound by the contract contemplated by the Deed. Contrary to cl 1.2 of the Deed, the irrevocable offer contained in it had not been “accepted strictly in accordance with [its] provisions”. Rather, viewed as a whole, the documents made it plain that the respondent was proposing to be bound to a different contract, one pursuant to which settlement was delayed for 192 days.

63. Finally, the time for completion was plainly regarded by the parties as material; hence the provision in cll 8 and 9. The fact that the respondent was departing from the terms of the Deed was not an immaterial non-compliance. It follows that the respondent did not comply with the Deed, and the option was not validly exercised.

Orders

64. For those reasons, I propose that the appeal be allowed, the orders made by the primary judge set aside, and the caveats lodged by the respondent be removed from the register. Those orders will have the effect of bringing to an end the existing interlocutory regime: see Fatimi Pty Ltd v Bryant [2002] NSWSC 750 at [226]–[229] and Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258 at [6].

65. As presently advised, there is no reason for costs, both in this Court and at first instance, not to follow the event. The orders I propose are without prejudice to the respondent’s right to apply, if so advised, for a different order as to the costs at first instance, having regard to the course of the proceedings after the first judgment (which addressed issues other than the validity of the exercise of the option). I express no view as to this, save that if the respondent is advised to bring any such application, it should be made by motion within the time specified by the rules, and with a view to its being determined on the papers unless good reason is shown for a further oral hearing.

66. I propose the following orders:

1. Appeal allowed.

2. Set aside the judgment and orders of the Court below dated 31 May 2018 and 18 July 2018.

3. Caveats AK6322973 and AM951778 be removed from the register held under the Real Property Act 1900 (NSW).

4. The respondent pay the appellants’ costs at first instance and in this Court.

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Amendments

11 September 2018 - [33] - "be fairly understood" changed to "fairly understand".

Decision last updated: 11 September 2018