Hills Central Pty Limited v Anthony Gerard Hagerty & Catherine Elizabeth Hagerty t/a the Executors of the Estate of the late Gladys Delores Hagerty

[2018] NSWSC 789

Supreme Court

New South Wales

Medium Neutral Citation:

Hills Central Pty Limited v Anthony Gerard Hagerty & Catherine Elizabeth Hagerty t/a the Executors of the Estate of the late Gladys Delores Hagerty [2018] NSWSC 789

Hearing dates:

8 March 2018

Date of orders:

31 May 2018

Decision date:

31 May 2018

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Declaration made that plaintiff has validly exercised the option. As the plaintiff has been successful the Court proposes to make an order in chambers for the defendants to pay the plaintiff’s costs of the proceedings on the ordinary basis unless the defendants file a motion by 4.00pm on Friday, 8 June 2018 for some other costs order.

Catchwords:

REAL PROPERTY - option deed - option over real property - option exercised - whether requirements for exercise of option met - option deed required the completion date for the contract for sale of land provided with the notice of exercise of option “to be specified on the front page of the contract” and for it to “be the date 192 days from the date of the contract”, except in certain defined circumstances - the plaintiff’s covering letter with the exercise of option enclosing the necessary documents requested the insertion of a completion date of 192 days from the date of the contract - the requested date was not the correct completion date, as calculated according to the proper construction of the applicable clause in the option deed - what are the requirements for the valid exercise of the option under the option deed - whether the option was validly exercised in accordance with the option deed.

Legislation Cited:

Civil Procedure Act 2005
Real Property Act 1900

Cases Cited:

Ballas v Theophilos (No. 2) (1957) 98 CLR 193
Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600
Boreland v Docker [2007] NSWCA 94
C & P Syndicate Pty Limited v Reddy [2013] NSWSC 643
Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20
Comdox No 24 Pty Ltd v Robins [2009] NSWSC 367
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Haixing Group Pty Ltd v Mary Ann Chan [2015] NSWSC 1637
Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
Perry v Suffields [1916] 2 Ch 187
Prudential Assurance Co Limited v Health Minders Pty Ltd (1987) 9 NSWLR 673
Quadling v Robinson (1976) 137 CLR 192
Tonitto v Bassal (1992) 28 NSWLR 564
Young v Lamb [2001] NSWCA 225

Texts Cited:

P J Butt, The Standard contract for the Sale of Land in NSW (2nd ed, 1998, LBC Information Services)

Category:

Principal judgment

Parties:

Plaintiff: Hills Central Pty Limited
Defendant: Anthon Gerard Hagerty & Catherine Elizabeth Hagerty t/a the executors of the estate of the late Gladys Delores Hagerty

Representation:

Counsel:

 

Plaintiff: M.Ashhurst SC; G.P.Gee
Defendant: G.Farland

 

Solicitors:

  Plaintiff: Venothan Panicker, Blackstone Waterhouse
Defendant: Graeme John Hockley, Lamrock Solicitors

File Number(s):

2017/258219

Publication restriction:

No

Judgment

1. The point at issue in these proceedings is whether the plaintiff, Hills Central Pty Limited (“Hills Central”), has validly exercised, as against the defendants, Anthony and Catherine Hagerty (“the executors”), an option for the purchase of certain real estate. The executors contend, and Hills Central disputes, that the valid exercise of the option required the notice of exercise of option to contain the correct completion date for the contract for sale of land that the exercise of the option would bring into existence. The notice of exercise of the option did not specify any completion date. But the covering letter to the notice issued on behalf of Hills Central, requested that the executors insert a completion date upon the correct construction of the option that was the incorrect date. These reasons prefer Hills Central’s contentions on this issue, and conclude that the option was validly exercised.

2. Mr M. Ashhurst SC and Mr G. Gee of counsel, instructed by Blackstone Waterhouse, appeared for Hills Central. Mr G. Farland of counsel, instructed by Lamrock Solicitors, appeared for the executors.

3. The following is the background narrative. This narrative represents the Court’s findings on all the matters covered, except to the extent that the context indicates that only the parties’ contentions are being recorded. No relevant fact was in dispute in these proceedings.

The August 2014 Option Deed and the Option

4. On 5 August 2014, Catherine Hagerty, as the attorney for her parents Mr Anthony Hagerty and Mrs Gladys Hagerty (“the Hagertys”), executed an option deed (“Option Deed”) granting an option in favour of Castle Hill Property Developments Pty Limited (“Castle Hill”) over a residential property in Old Castle Hill Road, Castle Hill (“the Property”). The defined terms of the Option Deed are referred to within these reasons in capital letters, just as the Option Deed itself refers to them. The Option Deed respectively defined the parties to it: under the Option Deed the Hagertys were “the Grantor” of the option and Castle Hill was “the Grantee” of the option.

5. For an Option Fee of $19,615, the Hagertys, as the Grantor, granted to Castle Hill, as the Grantee (or its Nominee), an option to purchase the Property at the price, and on the full terms set out in Option Deed, clause 1 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. The “Item 6” referred to in clause 1 is one of eleven “Items” listed in the Schedule attached to the Option Deed.

7. The Option Deed also attached a form of contract which reproduced the Law Society’s 2005 edition contract for the sale of land into which further (special) conditions were added (“the Contract”).

8. The front page of the Contract was only partially complete. On this front page of the Contract attached to the Option Deed only the names of Anthony and Gladys Hagerty, as vendor, and the Property description were filled out.

9. The remaining front page variable Contract details were blank. The front page allowed for the specification of, but left unspecified, the following: the vendor’s solicitor; the Completion Date; the identity of the Purchaser; the amount of the Purchase Price; the amount of the Deposit; the Balance of the Purchase Price; and the Contract date.

10. Anthony Hagerty died in September 2014. On his death his interest as joint tenant in the Property passed to his wife, Gladys Hagerty. But Gladys Hagerty died shortly afterwards in January 2015. The defendants are the executors of Gladys Hagerty’s estate. At the time of the hearing, Anthony Hagerty and Gladys Hagerty were still recorded as the registered proprietors of the Property, which had not yet been transmitted into the names of the executors.

11. The Option Deed permitted the Grantee to assign the benefit of the option that it had granted and to appoint a Nominee to exercise the option: clauses 1.4 and 1.5. Castle Hill took advantage of this right of nomination. It served a Nomination Notice dated 24 June 2016 on the solicitor for the Grantor on 2 August 2016 nominating Hills Central. And it served another Nomination Notice in the same terms at the time of the exercise of the option. It is not in issue in these proceedings that Castle Hill’s nomination of Hills Central was effective.

Manner of Exercise of Option – Option Deed, Clause 2

12. The Option Deed, clause 2 was headed “Exercise of Option” and provided for the exercise of the option. The exercise period was the 24 months from the date of the Contract, being the period between 4 August 2014 and 4pm on 4 August 2016: see Option Deed, clause 2.1 and Schedule, Items 1 and 7.

13. The option may be exercised in the manner detailed in the Option Deed, Clause 2, which provided as follows:

“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). 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 Day Legal Pty Limited, Specialist Property Lawyers, at Suite 3.07 'Post’ 46a Macleay Street, Potts Point, NSW 2011 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 settled 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 for the development of the Property]

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

2.5   The parties note that the Property contains a pool which has not been issued with a compliance certificate. The Grantors will obtain a compliance certificate in relation to the pool prior the expiry of 12 months from the date of this Option and this compliance certificate will be attached to the Contract for Sale of Land.”

14. The requirements of the Option Deed for the exercise of the option by a Nominee may be briefly summarised. The requirements were personal delivery (to the office of the solicitors specified in item 10 of the Option Deed) of the following:

1. written notice of the exercise of the option signed by the Nominee (with no form of notice being specified in the Option Deed);

2. two copies of the Contract signed by the Nominee, naming the Nominee as the Purchaser, and specifying the Purchase Price and the Deposit;

3. a form of nomination signed by the Grantee (or signed by the person entitled to make the nomination as at that date); and

4. a cheque for the balance of the 10% Deposit, payable under the Option Deed in favour of the stakeholder named in the Contract.

Extending the Option Period – Option Deed, Clause 3

15. The Grantee, or the Grantee’s Assignee or Nominee, was permitted to extend the period during which the option may be exercised by one full year to a new Option Exercise Date, being 4 August 2017: Option Deed, clause 3.1, Schedule Item 9. This could be effected by the payment of an Option Extension Fee of $9,808 before 4 August 2016: Option Deed, clause 3.1 and Schedule Item 8. Clause 3.1 provides as follows:

“3   EXTENSION OF OPTION EXERCISE DATE

3.1   If the Grantee or its assignee or nominee pays the Option Extension Fee specified in Item 8 to the Grantee prior to the Option Exercise Date specified in Item 7, then the Option Exercise Date specified in Item 7 shall be extended to the Extended Option Exercise Date specified in Item 9.”

16. Caste Hill’s Nomination Notice served on 2 August 2016, nominating Hills Central as its Nominee, also enclosed a cheque for $9,808 for the Option Extension Fee. This automatically extended the date for the exercise of the option to what the Option Deed defined as the Extended Option Exercise Date to 4 August 2017.

17. The Option Deed then provided sequentially for a number of machinery matters that have not proven to be contentious in these proceedings: the crediting of the Option Fee to the balance of the purchase money payable (clause 4.1); the Grantor’s consent to the Grantee lodging development applications in respect of the Property (clause 5.1); the Grantee will pay the Grantor’s reasonable legal fees (clause 6.1); and that the parties will keep the terms of the Option Deed confidential (clause 7.1).

The Grantor’s Right to Extend the Completion Date – Option Deed, Clause 8

18. The Option Deed also permitted the Grantor to specify a new Option Exercise Date. Option Deed, clause 8 allowed the Grantor to vary the period in which the option might be exercised, provided the Grantor did not exercise this right within the first 12 months and provided at least 30 days’ advance notice was given. Such a notice is defined in clause 8.1 as a “Grantor’s Notice”. Clause 8 provides 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 Data 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. ”

19. The logic of clause 8 is that if the Grantor’s commercial circumstances required, for example, a shortening of the option period for its own purposes, it has the capability to bring that about.

Calculating the Completion Date - Option Deed, Clause 9

20. But the price of the Grantor issuing a Grantor’s Notice is that the Grantee gets more time to settle the contract after exercise of the option. Option Deed, clause 9 titled “Completion Date” provides:

“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.”

21. No Grantor’s Notice was issued in this case. Therefore the Completion Date “to be specified on the front page of the contract” was to be 42 days from the date of the Contract: clause 9.2.

22. But as will be seen below, no completion date was specified on the front page of the Contract at the time of exercise of the option. But the cover letter from the Plaintiff enclosing the option exercise documents requested the insertion of a Completion Date of 192 days from the date of the contract pursuant to clause 9.1 of the Option Deed. Because no Grantor’s Notice had been served, that was the wrong date.

The Exercise of the Option by Hills Central

23. Hills Central purported to exercise the option on 4 August 2017, under the Option Deed. That day through its solicitor, Mr Mark Fitzpatrick, it delivered four documents to the Grantor’s solicitor. But before the delivery Ms Lorraine Chung from Mr Fitzpatrick’s office had a telephone conversation with Ms Reegina Moteea at Frank Legal. After confirming that Ms Moteea acted for the Grantor, she said to Ms Moteea words to the effect, “Hills Central are exercising the option to purchase, I need to prepare the cheque for the contract for sale. Do I make it out to Frank Legal Pty Limited Trust Account?” To this she received the reply, “That is correct.” She then proceeded to arrange the delivery.

24. The four documents then delivered to Frank Legal were as follows. First, Hills Central delivered a formal written Notice of Exercise of Option, addressed to the executors and executed by, or on behalf of, Hills Central in the following terms:

“TAKE NOTICE that HILLS CENTRAL PTY LTD ACN 605 975 942 exercises the Option granted by you to CASTLE HILL PROPERTY DEVELOPMENTS PTY LTD ACN 169 716 907 under the Deed of Call Option dated 5 August 2014 (Option Deed) for the purchase of the Property.

Enclosed is an unendorsed bank cheque for $196,152.00 in favour of Frank Legal Pty Ltd Trust Account in payment of the balance of the Deposit required under the Contract in accordance with the Option Deed.

Capitalised words used in this notice have the meaning given to them in the Option Deed.

Dated: 3 August 2017”

25. Next, Hills Central delivered two copies of the Contract, executed on behalf Hills Central, naming Hills Central as the Purchaser, and specifying the Purchase Price as $1,961,520 and the Deposit as $196,152. There is no dispute about the calculation of the Purchase Price or the Deposit. But Hills Central did not specify a Completion Date on the front page of the two copies of the Contract it arranged to be delivered with Mr Fitzpatrick’s letter of 3 August 2017. The Completion Date was left blank.

26. Third, Hills Central delivered a further Nomination Notice signed by the Grantee, Castle Hill, appointing Hills Central as Nominee under the Option Deed. This further nomination notice was dated 3 August 2017.

27. Finally, Hills Central delivered a cheque for $196,152, being the balance of the 10% Deposit payable under the Contract.

28. Mr Fitzpatrick’s letter of 3 August 2017 provided to Frank Lawyers listed all these enclosed documents. Mr Fitzpatrick’s letter then concluded, “We request that you exchange the contracts and that you enter the Completion Date on the front page of the contract to be 192 days from the date of the contract pursuant to clause 9.1 of the [Option] Deed”.

29. Lamrocks Solicitors replied on behalf of the executors on 11 August 2017. They contended that the option “was not exercised in accordance with the Deed of Option and as such the option has now lapsed”. Lamrocks returned the cheque for the deposit and stated that Hills Central “no longer has a caveatable interest” in the Property.

The Pleadings and Issues

30. Hills Central claims: a declaration that it validly exercised the option under the Option Deed on 4 August 2017; and, an order that the Option Deed be specifically performed including by the exchange of the Contract.

31. The issues raised by these facts are: whether Hills Central failed validly to exercise the option because Hills Central, as Nominee, did not insert a Completion Date of 42 days from the date of exercise of the option on the front sheet of the Contract; and whether Hills Central’s request in the 3 August 2017 covering letter for the Notice of Exercise of Option that the Grantor, by then the executors, enter a Completion Date of 192 days.

Hills Central’s Contentions

32. These reasons first set out Hills Central’s contentions, followed by the Court’s analysis of the Option Deed. Then the Court examines the executor’s Contentions. Hills Central contends that:

1. for a valid exercise of the option, it merely needed to comply with Option Deed, clause 2;

2. it complied with clause 2:

1. by inserting Hills Central’s details as purchaser and specifying the Purchase Price and Deposit in the Contract; and by

2. by delivering to the solicitors for the executor a Nomination Notice, Notice of Exercise of Option, two copies of the Contract and deposit cheque in accordance with that clause;

3. the Option Deed properly construed, did not require Hills Central to specify a Completion Date on the front page of the Contracts to validly exercise the option; and

4. the circumstances show that Hills Central’s intention was to exercise the option, and the request in Hills Central’s covering letter for a Completion Date other than the one required by the Contract did not invalidate the exercise of the option, and was not a counter offer, because:

1. the notice of exercise was not conditional on the Defendants’ acceptance of that incorrect date;

2. the 3 August 2017 covering letter did not form any part of the exercise of the option; and

3. the contractual machinery for the specification of the correct Completion Date for the Contract was otherwise fully provided for in the Option Deed, clause 9.

33. In answer to this the executors contend: that a combination of Option Deed clauses 2 and 9 require Hills Central to specify a completion date on the front page of the Contract before Notice of Exercise of Option; that Hills Central’s failure to do so and its request to insert the an incorrect Completion Date in the covering letter to the Notice of Exercise of Option in substance amounted to a counter-offer to the executors, which the executors chose not to accept.   

Applicable Legal Principles

34. The applicable legal principles to determine whether an option has been validly exercised may be shortly stated. In Prudential Assurance Co Limited v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677 Kirby P (as his Honour then was) summarised the principles. Kirby P’s summary has been widely adopted: Young v Lamb [2001] NSWCA 225 at [21]-[26] per Stein JA (with whom Mason P and Hodgson JA agreed); C & P Syndicate Pty Limited v Reddy [2013] NSWSC 643 at [86] per Lindsay J; and Haixing Group Pty Ltd v Mary Ann Chan [2015] NSWSC 1637 (“Haixing”) at [21] per Darke J. The first and third principles were also quoted with approval in Bondi Beach Astra Retirement Village Pty Ltd v Gora (2011) 82 NSWLR 665; [2011] NSWCA 396 at [69] per Campbell JA (with whom Giles and Whealy JJA agreed). Kirby P said the following (at 677):

“1.   The primary rule is that the purported exercise of the option must express clearly and unequivocally the fact that this is what is intended: see Dixon CJ in Ballas v Theophilos (No 2) (ibid at 196); see also R Fox, “Options” (1950) 24 ALJ 7 at 11. However because clarity and lack of equivocation are matters of opinion and impression, because inflexible insistence on form could lead to plain injustice and because fact situations vary almost infinitely a number of elaborations of this primary rule have been developed by the courts.

2.   It is not necessary, for example, for the effective exercise of an option, that terminology conforming precisely to the terms of the option should be used: see Williams J in Ballas v Theophilos (No 2) (ibid at 205); cf Gower-Chapman v Morris [1987] NSW Conv R No 55-341.

3.   The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it, in all the circumstances of its receipt: cf Carter v Hyde (1923) 33 CLR 115 at 126; adapting Romer J in Jones v Daniel [1894] 2 Ch 332 at 335. The addition by Isaacs J of the phrase “in the circumstances of its receipt”, adds instruction that the consideration which will govern the meaning to be ascribed to the letter is not to be judged in isolation, weighing only the words used. It is to be judged against the background of the dealings between the parties: cf Braham v Walker (1961) 104 CLR 366 at 376 and Lamont v Heron (1970) 126 CLR 239. The parties did not dispute that this Court could look to those dealings, at least up to the time for the exercise of the option had expired.

4.   Although a notice may mis-state the terms of the option which it purports to exercise, it may nevertheless amount, depending on the circumstances, to an unqualified and unconditional exercise of the option: Quadling v Robinson (1976) 137 CLR 192 at 201. On the other hand, if the grantee of the option sets out an erroneous understanding of it and then purports to exercise the option as so understood, the exercise will, generally speaking, be ineffective (ibid at 201): see also Oliver v Oliver (1958) 99 CLR 20.

5.   Nonetheless, every case depends ultimately upon its own facts and the proper construction of the document which is in dispute. Accordingly care must be observed in laying down general rules suggested to be of inflexible operation: see Gibbs J in Quadling v Robinson (ibid at 201) and cf Hope J in Johnson v Bones (at 37).”

35. Some cases stated that the effective exercise of an option requires “strict” adherence to the method prescribed in the instrument creating the option: see Tonitto v Bassal (1992) 28 NSWLR 564 (Sheller JA, with whom Handley JA and Hope A-JA agreed).

36. But other cases are authority for the proposition that “strict” or “exact” compliance overstates the true requirement, and that only “compliance” is required: Comdox No 24 Pty Ltd v Robins [2009] NSWSC 367. Bryson AJ said (at [23]):

“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 pixy 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 reading of the contractual requirement should be understood and given effect, and undue exactitude or the creation of difficulties which the language does not yield from a fair reading are not appropriate. 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.”

That passage was cited with approval in Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716 at [20] per Pembroke J and Haixing at [26] per Darke J.

37. But the option must always be construed to identify what the requirements for compliance are in each case. In Boreland v Docker [2007] NSWCA 94 at [31] Beazley JA said:

“It is apparent from Tonitto v Bassal that although it is authority for the proposition that the exercise of an option requires strict adherence to the method prescribed in the instrument creating the option, it may be a question of construction as to what those requirements are.”

38. The Option Deed is a commercial agreement. There are many appellate pronouncements as to how courts should construe commercial contracts. I am guided by one of the most recent of these, the High Court’s decision in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (“Woodside”) where the majority (French CJ, Hayne, Crennan, and Kiefel JJ) described the approach to construction of the commercial contract in the following way (omitting footnotes):

“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

39. In his Honour’s dissenting judgment in Woodside, Gageler J compactly expressed the same idea at [53], as follows:

“Commercial parties contracting at arm’s length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant.”

40. These principles were further restated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52].

41. This judgment does not call for any further discussion of the principles of the construction of commercial contracts. The Option Deed is a reasonably well-crafted document. Despite the present disputes, its provisions are drafted in a way that conveys clear meaning and, as these reasons show, can be construed in a way that clearly defines the obligations of each party.

Analysis of the Option Deed

42. The Court’s analysis here substantially accepts Hills Central’s persuasive construction of the Option Deed. The Court’s analysis below draws on Hills Central’s submissions and concludes that Hills Central can validly exercise the option without specifying a Completion Date on the front page of the Contract. As that analysis proceeds below it includes an examination of the executors’ contrary arguments, which the Court has found less persuasive for the reasons given below.

43. The structure of the Option Deed gives some indication of how its provisions are intended to work and interact. Clause 1, “The Option” defines the substance of the option granted. Clause 2, “Exercise of the Option”, defines the requirements to be met for the valid exercise of the option. And the two clauses 8 and 9, “Grantor’s Notice” and “Completion Date” together deal with the Grantor’s right to issue a notice to change by, for example, shortening both the Option Exercise Date and the Extended Option Exercise Date. What is required to exercise the option is principally found in Clause 2. But the executors contend, and Hills Central disputes, that clauses 8 and 9 also constitute requirements for the valid exercise of the option.

44. (1) No Express Clause 2 Requirement for Completion Date on Option Exercise. Hills Central submits with some force that clause 2 does not expressly require a Nominee (or Grantee), when exercising the option, to specify the Completion Date on the front page of the Contract. And Clause 2 does not expressly incorporate by reference any of the obligations stated in clause 9. Hills Central relies on the omission to refer to clause 9 in clause 2.1.3’s otherwise comprehensive listing of option exercise requirements, as a basis to contend that the Option Deed’s clause 9 obligations do not operate at the time of exercise of the option. This is a powerful consideration supporting Hills Central’s construction of the Option Deed.

45. The executors seek to counter this by contending that a fundamental obligation of clause 2.1.1 is that the Contact must be “prepared by the Grantee” and that means that the Grantee must therefore fill out all the details that can be completed in the Contract including the Completion Date. But the first answer to that contention is that the words “prepared by the Grantee” are only applicable to an exercise by the Grantee not by a Nominee such as this case.

46. This can be seen on closer analysis. Clauses 2.1.1, 2.1.2, and 2.1.3 set out the obligations of a Grantee, an Assignee and a Nominee when each exercises the option. The provisions are to a degree cumulative, such that clause 2.1.3 assumes the operation of clause 2.1.1.

47. The executors point out that clause 2.1.1 (ii) expressly requires the Grantee to prepare the Contract: the two copies of the Contract delivered are “prepared by the Grantee”. But the burden of preparation on a Nominee is lower. All that is required by clause 2.1.3 is that “the two copies of the Contract shall be signed by the nominee”. The provision is silent about preparation by the Nominee. This makes sense as the Nominee may have less information than the Grantee and the task of preparation may be shared. Clause 2.1.3 only requires the Nominee to deliver a Notice of Exercise of Option, two copies of the Contract signed by the Nominee, and a form of nomination signed by the Grantee. These documents will fix the essentials of an enforceable contract for the sale of the Property: a form of contract for its sale signed by the Nominee as purchaser, the price and the deposit.

48. (2) The Language of Clause 9 Operates Other Than Upon Option Exercise. Next, Hills Central points to other important linguistic differences between clauses 2 and 9 that indicate that it is not necessary when exercising the option, for the Nominee to specify the Completion Date on the front page of the Contract. The language of clause 9 is materially different from that in clauses 2.3 and 2.4 of the Contract. Clause 2’s main elements are crafted in language that constantly reinforces the idea that Clause 2 imposes requirements entirely at the moment of exercise of the option: “…delivered at the time of exercise of the option” (clauses 2.1.2 and 2.1.3); “on delivery of the Notice of Exercise of Option (clause 2.2); “the Purchase Price to be specified in the Contract upon exercise of this Option…” (clause 2.3); “the Deposit to be specified in the Contract upon exercise of this Option…” (clause 2.4).

49. In contrast to the clause 2 command requiring specification of the Purchase Price and the Deposit “upon exercise of this Option”, Clause 9 omits the words “upon exercise of this Option” and just prescribes a choice of one of two possible dates for “the Completion Date to be specified on the front page of the Contract”.

50. This difference in language is not accidental. The subject matter of clause 2.3, the Purchase Price, is an essential integer of a binding contract for the sale of land. The quantum of the Deposit (clause 2.4) is a derivative of the Purchase Price. The exact Purchase Price is to be calculated by reference to the permissible height control limits for the development at the site of the Property but Hills central is required upon exercise of the option to commit to the Purchase Price.

51. In contrast, clause 9 does not require the specification of the Completion Date to occur “upon exercise of this Option”. It is logical that this detail can be left until later. In my view, it reflects the difference at law that a valid “open contract” for the sale of land can be brought into existence provided the parties have agreed upon the bare minimum essentials, upon the identity of the vendor and purchaser, upon the description of the land and upon the purchase price: Cavallari v Premier Refrigeration Co Pty Limited (1952) 85 CLR 20, 25-26 and Bondi Beach Astra Retirement Villages v Gora (2011) 82 NSWLR 665; [2011] NSWCA 396 at [73] per Campbell JA. The common law and the Conveyancing Act1919 will imply further terms. A valid contract for the sale of land may be silent about the date for completion. And where the contract is silent, the fixing of a date for completion is part of the common law and is a matter which arises after the title had been accepted or after the inquiry as to title: Perry v Suffields [1916] 2 Ch 187 at 191; and see P J Butt, The Standard contract for the Sale of Land in NSW (2nd ed, 1998, LBC Information Services), at [16.76].

52. (3) Clause 9’s Operation Does Not Depend on the Acts of the Parties. Clause 9 does not just leave the parties to their general law rights to deal with the supplementary matter of the date for completion. Clause 9 is far more precise than that: it provides for a binary outcome (of 42 days or 196 days from contract) based on an assumed and objectively verifiable fact (namely, whether or not a Grantor’s Notice has been served). That clause 9 leaves no room for discretion is consistent with its other feature: it does not require either the Grantor, the Grantee or the Nomine to specify the Completion Date. Rather it couches its requirement to specify in the passive voice: “the Completion Date to be specified”. Either party could specify the Completion Date, or in default the Court could do so simply by applying the clause 9 formula. The use of the passive voice makes clear that clause 9 does not create an obligation on the Grantee/Nominee either at or after “exercise of this Option”. The clause merely requires the insertion of the Completion Date to follow the objectively verifiable fact of service or otherwise of a Grantor’s Notice.

53. And not requiring the Nominee to specify a Completion Date at the time of exercise of the option serves an important commercial purpose. The Nominee may not know the correct Completion Date to be specified because the Grantor’s Notice may have been served only on the Grantee. It would not make commercial sense to construe clause 9 to impose an obligation on the Nominee to specify a Completion Date in the Contract, where the Nominee did not know whether or not a Grantor’s Notice had been served. The Option Deed does not create a mechanism for a Nominee to receive any Grantor’s Notice that has been served, or to otherwise be informed of the applicable Completion Date to be specified in the Contract.

54. The executors argue that here, the Nominee was well aware that the Grantor had not served a Grantor’s Notice. But that is not an answer to Hills Central’s construction argument, which does not depend upon the facts of any particular case but rather upon how the provisions of the Option Deed operate in a variety of situations.

55. (4) The Parties are Immediately Bound by Clause 2.2 Upon Option Exercise. The executors point out that by clause 2.2 of the Option Deed, the Grantor and the Nominee become immediately bound as Vendor and Purchaser under a Contract for Sale of Land “(o)n delivery of the Notice of Exercise of Option (and the other documents and the cheque) in accordance with clause 2”.

56. The executors emphasise that the effect of the delivery of the documents is to create an immediately binding contract on delivery, so if the Completion Date were left blank, as it was here, that would require the specific performance of the Contract without a completion date. But the answer to this is that the law is clear enough that a completion date in a contract for the sale of land can be specified after contract and before an order for specific performance by one party serving a notice to complete on the other. But here, as earlier indicated, the situation is even more certain because of the clause 9 mechanism.

42. And it is to be remembered that Clause 2.2 only requires the Purchase Price and the Deposit to be specified in the Contract upon exercise of the option. Moreover, the other terms of the Contract to be brought into existence suggest that Option Deed, clause 2.2 should not be construed to bring a Contract into being only if a Nominee has specified a Completion Date in the Contract. The 2005 Law Society Edition Contract with its special conditions as provided for in the Option Deed does not make the time for completion an essential term. Any failure on the part of a purchaser to complete the Contract by the nominated Completion Date would not entitle the vendor to terminate. For that, a vendor would have to give 14 days’ prior notice: see Contract, further conditions, clause 33.

43. The Contact could be specifically enforced without a specified Completion Date. The Contract contains workable machinery that operates to determine the Completion Date of the Contract based on readily ascertainable defined events. Option Deed, clause 9 directs exactly what completion date was required in all circumstances, including those that existed here. The parties would not be required to further agree to fix a binding completion date. A decree for specific performance of the Contract could therefore be made: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; [1982] HCA 53 at 604-605 per Gibbs CJ, Murphy and Wilson JJ, and 617 per Brennan J.

44. (5) The Covering Letter’s Request - a Condition for Exercise of the Option? The executors argue that in combination with other factors, Hills Central’s request to insert an incorrect Completion Date in the covering letter to the Notice of Exercise of Option in substance amounted to a counter-offer to the executors.

45. 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.

46. 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”.

62. 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.

63. Had Hills Central actually specified an incorrect Completion Date in the Contract that could have founded an argument that the option was not properly exercised. Specifying an incorrect date could have been construed as a conditional exercise of the option, the condition being the Grantor’s acceptance of a variation to the Completion Date to be specified by clause 9. So making the request that Hills Central did was a reasonable way of ensuring that the specification of a wrong date did not look like a counter offer. Exercising the option without specifying the Completion Date on the front page of the Contract and requesting the Grantor to enter the Completion Date in the Contract, reduced the risk that the exercise of the option would be construed as conditional. And the request to put in what was a 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.

64. But the 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.”

65. 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.”

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

67. The executors suggested in argument that Hills Central’s advancing of the wrong Completion Date was deliberate. In contrast Hills Central submitted that it was a mistake. There was no cross examination in this case. The Court had no basis in the evidence to reach either of these suggested conclusion. So this aspect of the argument can be put to one side.

68. (6) Was the Exercise of the Option Clear and Unequivocal? The executors submit that the service of the Notice of Exercise of Option with the covering letter making the request to insert the incorrect Completion Date indicates that Hills Central did not declare a clear and unequivocal intention to exercise the option.

69. But in my view, Hills Central’s conduct taken as a whole made quite clear that the Plaintiff intended to exercise the option in the Option Deed: Ballas at 205. And this must have been clear to the executors.

70. First, the text itself of the Notice of Exercise of Option contains no ambiguity and is not conditional on the executors accepting the incorrect Completion Date.

71. Second, the other contemporaneous oral communications reinforce the clear inference that Hills Central was exercising the option. On 3 August 2017, the solicitor for the Plaintiff contacted the Grantor’s nominated solicitor and said that the Plaintiff was “exercising the option to purchase”.

72. Third, on 4 August 2017 Hills Central delivered all the documents specified in Option Deed, clause 2 to exercise the option.

73. Fourth, for the reasons expressed in (5) above, the 3 August 2017 covering letter did not impose a condition on the acceptance of the offer contained in the Option Deed and was really designed to avoid that possible outcome.

74. 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.

75. 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.

76. The parties engaged in a subsidiary argument about whether a further exchange of contracts was necessary. In my view to give effect to the Court’s declaration as to the validity of the exercise of the option an exchange should take place with the agreed correct Completion Date inserted in the exchanged documents and the Court will so order.

Conclusion and Orders

77. For these reasons the Court will make the following orders and declarations:

1. Declare that on 4 August 2017 the Plaintiff validly exercised the option under the Deed of Option dated 5 August 2014 for the purchase of Lot 19 in DP135800 known as 24 Old Castle Hill Road, Castle Hill NSW 2154 (“the Property”).

2. Order that the terms of the Deed of Option be specifically performed and carried into effect, including by the exchange of the contract for the sale of land 2005 edition signed by the Plaintiff in respect of the Property, so created by the exercise of the option on 4 August 2017.

3. Subject to order (4), order that the defendants pay the plaintiff’s costs of these proceedings.

4. The costs order provided for in order (3) above will only be made, if no party files by 4.00pm on Friday, 15 June 2018 a motion to seek a special costs order.

5. Leave to file the motions provided for in (4) is hereby given and the filing of any such motion may be effected by forwarding it to my Associate and making it returnable before me at 9.30am on Tuesday, 19 June 2018.

6. Grant liberty to apply.

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Decision last updated: 31 May 2018