Hobhouse v Macarthur-Onslow

[2022] NSWCA 158

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Hobhouse v Macarthur-Onslow [2022] NSWCA 158

Hearing dates:

28 April 2022

Date of orders:

23 August 2022

Decision date:

23 August 2022

Before:

Ward P at [1];
Macfarlan JA at [2];
White JA at [43].

Decision:

(1)   Allow the appeal.

(2)   Dismiss the cross-appeal.

(3)   Set aside the orders made in the Equity Division on 11 June 2021 and in lieu thereof declare that the purported exercise by Mr Macarthur-Onslow on or about 22 April 2021 of the option referred to in cll 5.6 and 12.2 of the Deed of Settlement and Release of 22 February 2021 was ineffective.

(4)   Order the respondents to pay the appellant’s costs of the proceedings in this Court and in the Court below.

Catchwords:

CONTRACTS — implied term — where the primary judge implied a term into a deed containing an option to purchase land so as to validate the purported exercise of that option — whether the conditions stated in BP Refinery were satisfied — held on appeal that the term was not necessary to give business efficacy to the contract, not “so obvious that it goes without saying” and not consistent with the express terms — further held that it was sufficient that the option, without the implication, was capable of being exercised in many foreseeable circumstances as distinct from all conceivable circumstances

EQUITY — remedies — whether the respondent entitled to relief against forfeiture if option to purchase land was not validly exercised — held on appeal that the respondent did not establish any of the “special heads” of fraud, accident, mistake or surprise, or any other circumstances establishing unconscientious conduct on the part of the appellant — circumstances do not amount to an “accident” where they are reasonably within the contemplation of the parties

Cases Cited:

Bell v Lever Brothers Ltd [1932] AC 161

Besier v Foster (1952) 94 CLR 526; [1952] HCA 14

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; 52 ALJR 20

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; [1986] HCA 14

Hamlyn & Co v Wood &Co [1891] 2 QB 488

Heimann v The Commonwealth (1938) 38 SR (NSW) 691

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Ikin v The Danish Club "Dannebrog" Inc [2001] VSCA 123

Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11

Liverpool City Council v Irwin [1977] AC 239

Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592

Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367; [2003] HCA 58

Sanders v Snell (1998) 196 CLR 329; [1998] HCA 64

Stern v McArthur (1988) 165 CLR 489; [1988] HCA 51

Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57

The Moorcock (1889) 14 PD 64

Category:

Principal judgment

Parties:

Katrina Julia Denzil Hobhouse (Appellant)
Lee Macarthur-Onslow (First Respondent)
Kalemon Investments Pty Ltd (ACN 000 330 189) (Second Respondent)

Representation:

Counsel:
B Coles QC / M T Keene / C Langford (Appellant)
D Studdy SC / J Brezniak (First Respondent)

Solicitors:
Woolf Associates (Appellant)
Keypoint Law Pty Ltd (First Respondent)

File Number(s):

2021/195258

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2021] NSWSC 684

Date of Decision:

11 June 2021

Before:

Kunc J

File Number(s):

2021/121084

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 22 February 2021 the parties to this appeal entered into a Deed of Settlement and Release (“the Deed”) which sought to settle earlier proceedings in the Supreme Court involving members of the Macarthur-Onslow family.

The Deed conferred on Ms Hobhouse and Mr Macarthur-Onslow various options to purchase parcels of real property including an apartment in Darling Point (“the Apartment”). Clause 5.6 gave Mr Macarthur-Onslow a first call option to purchase the Apartment at the midpoint market value as determined in accordance with cl 8.1(d); it provided that the option would expire at the same time as Ms Hobhouse’s option to purchase another property would expire under cl 3.10. Clause 3.10 provided that Ms Hobhouse’s option to purchase that other property would expire 60 days following the execution of the Deed, which meant that Mr Macarthur-Onslow’s option to purchase the Apartment would expire on 23 April 2021. Clause 5.7 gave Ms Hobhouse a second call option to purchase the Apartment in the event that Mr Macarthur-Onslow did not exercise his option prior to its expiration; Ms Hobhouse’s option would expire 60 days after the expiry of Mr Macarthur-Onslow’s first call option. Clause 8.1(d) authorised Mr Rogers, an accountant, promptly to obtain and provide to Mr Macarthur-Onslow and Ms Hobhouse two current market valuations of the Apartment in order to determine a midpoint valuation and facilitate the exercise of the call options. Clause 12.2(d) provided that any option was to be exercised by service of written notice signed by the grantee together with two copies of the executed contract and a cheque for the deposit payable.

On 25 February 2021 Mr Rogers, in accordance with cl 8.1(d), sought valuations from two different valuers. He only received one valuation (at $4.25–$4.5 million) prior to the expiration of Mr Macarthur-Onslow’s call option. Consequently, the price of the option could not be determined and a cheque for the deposit could not be provided in accordance with cl 12.2(d).

On 22 and 23 April 2021 Mr Macarthur-Onslow nevertheless purported to exercise his option by submitting a written notice of exercise, two signed contracts for sale and a cheque for $437,500, being 10% of the midpoint of the range of the one valuation obtained by Mr Rogers.

On 30 April 2021 Ms Hobhouse filed a summons seeking a declaration that Mr Macarthur-Onslow had not validly exercised his option. On 3 June 2021 Kunc J delivered judgment in favour of Mr Macarthur-Onslow and held that the option had been validly exercised. Crucial to his Honour’s reasoning was the implication of the following italicised words into cl 12.2(d), such that it read:

“(d) Any such option … is to be exercised by service of written notice of exercise of option … signed by the Grantee, and if the price has been determined in accordance with this Deed, together with two copies of the Contract for the purchase of such property duly executed by the Grantee and cheque for the deposit payable …” (See [71] of the primary judgment).

The effect of this implication was that a cheque for the deposit would not be required in circumstances where the midpoint of the two valuations had not been determined prior to the expiration date.

The appeal brought by Ms Hobhouse raised two key issues. The first issue was whether the primary judge erred in implying the term that he did. The second issue, which only arose if the Court found that the option was not validly exercised, was whether Mr Macarthur-Onslow’s estate was entitled to relief against forfeiture.

The Court (Macfarlan JA; Ward P and White JA agreeing) concluded that the late Mr Macarthur-Onslow did not validly exercise his call option and that his executor is not entitled to relief against forfeiture; it therefore allowed the appeal and dismissed the cross-appeal with costs: [3], [42].

In respect of the implied term, the Court held that the primary judge erred in finding that the five conditions for implying a term, as set out in BP Refinery, had been satisfied: [22]–[29]. The implication in the present case did not satisfy the second, third and fifth conditions: [27]. The term is not necessary to give business efficacy to the contract (second condition) because the option, without the implication, is capable of being exercised in many foreseeable circumstances as distinct from all conceivable circumstances; the primary judge erred in attaching significance to the latter: [24]. Where there was a delay in a valuer responding to a valuation request, as occurred in the present case, it would have been open to Mr Rogers to approach other valuers as there were no restrictions on the valuers to be used, or on the character of the valuation that he was required to obtain: [22]. Moreover, the term was not so obvious that “it [went] without saying” (third condition) because a reasonable person might not consider it appropriate to bypass the deposit requirement altogether, that being the effect of the implication: [26]. Finally, the term contradicted the express terms of the contract (fifth condition) because it changed the circumstances in which a deposit was required: [29].

In respect of relief against forfeiture, the Court held that relief should not be granted: [32]. Mr Macarthur-Onslow did not establish any of the “special heads” of fraud, accident, mistake or surprise, or any other circumstances that would establish unconscientious conduct on the part of Ms Hobhouse: [38], [41]. Importantly, Ms Hobhouse did not cause or contribute to Mr Macarthur-Onslow’s inability to exercise the option: [39]. It was not unconscionable, without more, for Ms Hobhouse to insist upon the strict terms of the Deed, knowing that Mr Macarthur-Onslow wanted to purchase the Apartment, in circumstances where the contract was detailed and the product of careful drafting: [38]. A delay in obtaining the valuations could not be regarded as an “accident” in the relevant sense because it was reasonably within the contemplation of the parties and it was open to Mr Rogers to seek a valuation from another valuer: [40], [41].

Judgment

1. WARD P: I agree with Macfarlan JA.

2. MACFARLAN JA: This appeal concerns an option to purchase an apartment in Darling Point, Sydney (“the Apartment”). The option was contained in cl 5.6 of a Deed of Settlement and Release (“the Deed”) entered into between Ms Hobhouse (the appellant), the late Mr Lee Macarthur-Onslow and other parties on 22 February 2021. The first respondent is Mr Macarthur-Onslow’s executor and the second respondent is the owner of the Apartment. The primary judge held that during his lifetime Mr Macarthur-Onslow validly exercised an option in his favour contained in the Deed. Ms Hobhouse contends that he did not and that she is, or at least was, entitled to exercise a similar option which was stated to be available in the event that Mr Macarthur-Onslow did not exercise his option.

3. For the reasons appearing below, I have concluded that Mr Macarthur-Onslow did not validly exercise his option and that his executor is not entitled to the relief against forfeiture that he seeks. As a result, the appeal should be allowed.

The Deed of Settlement and Release

4. There are nine parties to the Deed. It is expressed to be in settlement of Supreme Court proceedings brought by Ms Hobhouse against a number of them. It makes detailed provision in respect of various parcels of valuable real property, including the Apartment. One of the parties to the Deed is Mr Stephen Rogers who is an accountant and is given certain roles under it.

5. The Apartment is dealt with in cl 5 which is in the following terms:

“5. YARRANABBE ROAD

5.1 Occupation of Yarranabbe Road Apartment

Lee may occupy the property known as Unit XX, XX Yarranabbe Road Darling Point, being Lots XXXX in Strata Plan XXXX (Yarranabbe Road Apartment) free of rent or other charge from Kalemon for as long as Katrina has a right to occupy the Homestead Lot under the Licence, or upon Lee’s death, whichever is the earlier.

5.2 Access for Katrina

Katrina as director of Kalemon to have access to the Yarranabbe Road Apartment upon giving 48 hours notice for repairs and maintenance as deemed necessary by Kalemon but works to be at Kalemon’s cost.

5.3 Access for executors

Lee will allow access to the Yarranabbe Road Apartment by Steve and/or Neil in their capacity as executors of the Estate and persons authorised by them, which they deem necessary (acting reasonably) solely for the purpose of finalising the Estate. Lee will allow Katrina access to the Yarranabbe Road Apartment when assessment is being made of Estate assets in that Apartment. …

5.5 Katrina’s personal belongings

Lee will on a day within 90 days of the date of this agreement as agreed between Katrina and Lee permit Katrina access to remove Katrina’s personal belongings from the Yarranabbe Road Apartment.

5.6 First call option to purchase to Lee

Kalemon hereby grants a call option for Lee (or his nominee) to purchase the Yarranabbe Road Apartment, and Lee will have first right to purchase the Yarranabbe Road Apartment from Kalemon at the midpoint market value as set out in clause 8.1(d) (or receive it by way of a distribution in specie on a winding up of Kalemon with Katrina receiving an equivalent cash distribution) (Lee’s Yarranabbe Road First Call Option). Lee’s Yarranabbe Road First Call Option expires at the same time as Katrina’s Call Option under clause 3.10, or upon Lee’s death, whichever is the earlier.

5.7 Second call option to purchase to Katrina

If Lee does not exercise Lee’s Yarranabbe Road First Call Option prior to its expiration, then Kalemon hereby grants a call option for Katrina (or her nominee) (Katrina’s Yarranabbe Road Second Call Option) to purchase the Yarranabbe Road Apartment to be exercised within 60 days after the expiration of Lee’s Yarranabbe Road First Call Option at the price determined under clause 5.6.

5.8 Abandonment of other rights

Lee releases and abandons any right to occupy the Yarranabbe Road Apartment other than as set out in clauses 5.1 and 5.6. …”

6. The reference in cl 5.1 to the “Homestead Lot” is to a rural property which is the subject of cl 3 of the Deed. Under the detailed provisions of that clause, Ms Hobhouse is given a right to occupy the Homestead Lot on certain terms and conditions. By cl 3.8 she is also given a call option to purchase the Homestead Lot (through her company) at a price of $40,000,000, with the following further provisions being applicable:

“3.10 Expiry of Katrina’s call option

Katrina’s Call Option will expire 60 days following the execution of this Deed.

3.11 Lee’s call option

If MGHPL does not exercise Katrina’s Call Option prior to its expiration, then MGPL hereby grants a call option for Leemaco (Lee’s Call Option) to purchase [for $40,000,000] the Homestead Lot to be exercised within 60 days after the expiration of Katrina’s Call Option.

…

3.19 Expiration of both call options

If Katrina’s Call Option and Lee’s Call Option both expire, MGPL will be at liberty to sell the Homestead Lot at a time and on terms that MGPL solely determines are appropriate provided that MGPL must use its best endeavours to maximise the sale price and provided that MGPL must give Katrina prior notice of such intended sale and if the sale is directly or indirectly to Lee or any person or body associated with Lee, Katrina to have equal opportunity and rights in relation to such proposed sale. …”

7. Clause 8 contains the following provisions relevant to Kalemon Investments Pty Ltd (the second respondent in the present proceedings, the owner of the Apartment and a party to the Deed):

“8.1 Kalemon

Lee and Katrina agree:

…

(d)

   they do hereby irrevocably authorise and direct the Accountant

[Mr Rogers] to obtain promptly following the execution of this Deed two current market valuations of the Yarranabbe Road Apartment and the property known as Southlands being the land in Folio Identifiers XXXX and, once obtained, for the Accountant to determine a midpoint valuation for the properties and to provide this in writing together with copies of the valuations (the first valuation notification) to Lee and Katrina;

(e)   If neither exercise their respective right to purchase the Yarranabbe Road Apartment, that property will be sold at the discretion of the Liquidator, which if conducted by public auction, Lee and Katrina will be permitted to bid;

(f)   Southlands will be sold by the liquidator at public auction at which Lee and Katrina will be permitted to bid;

(g)   If either Lee or Katrina purchases the Yarranabbe Road Apartment in accordance with clause 5 and/or Southlands in accordance with this clause or clause 9, the Liquidator will be requested to effect by way of an in specie distribution to offset, where available, all or part of the purchase price against an entitlement that party may have to participate in an in specie or cash distribution of the other assets of Kalemon, provided this does not alter an overall equal distribution to both Katrina and Lee. …”

8. Three further rural properties (“Calamondah”, “Deersbrook” and “Southlands”) are the subject of cl 9.

9. General provisions relating to options and other rights granted by the Deed are contained in cl 12 which is relevantly as follows:

“12. IMPLEMENTATION

12.1 Take all steps

Each party must take all steps, execute all documents and do everything reasonably required by any other party to give effect to the transactions contemplated by this agreement.

12.2 Terms of grants of options etc

(a)   In this deed, the grant of an option or right of first or last refusal for purchase of a property is a grant at the price as determined in this deed and, subject to any terms and conditions specifically referred to in such grant, is on the conditions specified in the contract attached to this agreement in respect of the respective property the subject of the option or right of first or last refusal (the respective Contract). If no contract in respect of any such property is attached the terms and conditions shall be the terms and conditions of the contract for the sale and purchase of land 2018 edition published by The Law Society of New South Wales and The Real Estate Institute of New South Wales.

…

(d)   Any such option and/or right of first or last refusal is to be exercised by service of written notice of exercise of option or right of last or first refusal (as the case may be) signed by the Grantee together with two copies of the Contract for the purchase of such property duly executed by the Grantee and cheque for the deposit payable under the respective Contract in favour of the vendor named in the Contract, by personally delivering those documents or forwarding those documents by prepaid registered post to the Grantor care of Mr Steven Rogers, XX Market Street, Sydney NSW or if there be a liquidator appointed to Kalemon to the Liquidator at the Liquidator’s usual business address. …”

Mr Macarthur-Onslow’s purported exercise of the Apartment option

10. Following the making of the Deed on 22 February 2021, Mr Rogers, on 25 February 2021, sought valuations of the Apartment from two different valuers, with a view to him calculating the “midpoint valuation” in accordance with cll 5.6 and 8.1(d). One valuer (Sotheby’s) provided a valuation (at $4.25–$4.5million) on 23 March 2021 but the other valuer did not provide a valuation within 60 days of the date of the Deed (that is, by 23 April 2021).

11. Mr Rogers could not, and therefore did not, calculate the “midpoint market value” by the date of expiry of Mr Macarthur-Onslow’s option. By reason of cl 5.6 the option needed to be exercised within the same period as Ms Hobhouse’s option under cl 3.10 (that is, within 60 days of the date of the Deed) or by the date of Mr Macarthur-Onslow’s death, whichever was the earlier (Mr Macarthur-Onslow did not die until August 2021, which was well after the expiration of 60 days from the date of the Deed). In these circumstances, the price at which the option was exercisable could not be, and was not, calculated prior to the last day for its exercise. Therefore a “cheque for the deposit payable under the respective Contract” as referred to in cl 12.2(d) could not be provided.

12. Mr Macarthur-Onslow however purported to exercise the option by submitting a notice of exercise and two signed contracts for sale on 22 April 2021. He also submitted a cheque for $437,500 (being 10% of the midpoint of the two amounts in the Sotheby’s valuation) on 23 April 2021. It was not contended on appeal that the payment made on 23 April 2021 constituted payment of the required deposit within 60 days of the date of the Deed. That amount was calculated by reference to the Sotherby’s valuation alone and not to the two valuations to which cl 8.1(d) referred.

10. It was accepted on appeal that this was not a valid exercise of the option in accordance with a literal reading of the Deed’s express terms. That is, it was accepted that, according to the express terms of the Deed, exercise of the option required inter alia that a cheque for the deposit, being 10% of the option price (which was to be the midpoint of the two valuations as calculated by Mr Rogers) had to be provided. The primary judge accepted that this was correct (see Judgment [70] and [72](2)). The percentage was to be 10% because that is the percentage specified for the deposit in the 2018 edition of the standard form of “contract for the sale and purchase of land” published by the Law Society of New South Wales and The Real Estate Institute of New South Wales (see cl 12.2(a) of the Deed). That form of contract was provided with the purported notice of exercise of the option (see [12] above).

11. By a summons filed in the Equity Division of the Supreme Court on
    30 April 2021, Ms Hobhouse sought inter alia a declaration that
    Mr Macarthur-Onslow had not validly exercised the option and an injunction to prevent the second respondent from entering into or completing any contract or transfer of title to the Apartment pursuant to Mr Macarthur-Onslow’s purported exercise of the option (the “Equity proceedings”). Justice Henry, sitting as the duty judge in the Equity Division, granted the injunction on 30 April 2021. The summons was heard urgently before Justice Kunc on 3 June 2021 and his Honour delivered judgment on 11 June 2021. The present appeal is brought by Ms Hobhouse under s 101(1) of the Supreme Court Act 1970 (NSW), pursuant to a notice of appeal filed on 7 July 2021.

The Primary Judgment

15. Having noted that no evidence had been tendered of any relevant surrounding circumstances, his Honour stated:

“[50] In my respectful view, the terms of cl 12.2(d) would be the determinative factor in favour of Mr Coles QC’s [counsel for Ms Hobhouse] construction of cl 8.1(d) in the absence of textual and circumstantial considerations sufficient to overcome that conclusion. The Court has concluded that there are seven such matters which point conclusively against the construction propounded by Mr Coles QC and in favour of the construction of cl 5.6 put to the Court by Mr Studdy SC [counsel for Mr Macarthur-Onslow]. I will deal with each of these in turn.”

16. After identifying those seven “textual and circumstantial considerations”, his Honour however said that he did not consider that “as a matter of construction, it is then open to the Court to construe away the plain words of cl 12.2(d)”, stating that “[t]he text must be given primacy” (Judgment [70]). In referring to “the plain words of cl 12.2(d)” (that is, its unambiguous words) his Honour was recognising that, according to the Deed’s express terms, the subject option was not validly exercised by Mr Macarthur-Onslow.

17. His Honour nevertheless found that a term of the Deed which rendered
    Mr Macarthur-Onslow’s purported exercise of the option valid was to be implied, the implication being the insertion in cl 12.2(d) of the words “and if the price has been determined in accordance with this Deed” after the reference in that clause to service of a written notice (Judgment [71]). The effect of this implication was that if the midpoint of two valuations, and therefore the price, had not been determined by the end of the period for exercise of the option, the notice was not required to be accompanied by a cheque for the deposit (or two signed copies of the contract) (Judgment [71]). On this basis Mr Macarthur-Onslow’s purported exercise of the option was valid.

18. In reaching this conclusion the primary judge found that the following well-known conditions for implication of a term, stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283; 52 ALJR 20, were satisfied:

1. The term must be reasonable and equitable;

2. The term must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

3. The term must be so obvious that “it goes without saying”;

4. The term must be capable of clear expression;

5. The term must not contradict any express term of the contract.

19. His Honour stated that “on its plain meaning” cl 12.2(d) is “unworkable if the price for the Yarranabbe Road Apartment has not been determined at the time of exercise of an option in relation to it” and said the following at [72] in relation to the five BP Refinery conditions:

“(1)   The implied term is reasonable and equitable, precisely because it maintains the symmetry or equality in the respective positions of Lee and Katrina, especially in relation to the Yarranabbe Road Apartment. The implication of the term means that each of them has the full period of their respective options in which to exercise those options, irrespective of whether or not the midpoint market value of the Yarranabbe Road Apartment has been determined.

(2)   The implied term is necessary to give business efficacy to the Deed because it is clear that, without it, all of the elements for valid exercise of an option set out in cl 12.2(d) could not be strictly satisfied because the purchase price would not be known to enable completion of the contract for purchase and the calculation of the amount of the deposit cheque.

(3)   Because the Court’s construction of cl 5.6 makes it impossible to comply with cl 12.2(d) in every circumstance, the term to be implied is so obvious that ‘it goes without saying’.

(4) The proposed implied term is capable of clear expression, as set out at [71] above.

(5)   It does not contradict any express term of the Deed.”

Consideration – implied term

20. In considering whether a term should have been implied in the present case, the following observations of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346; [1982] HCA 24 should be borne in mind:

“For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.

Accordingly, the courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. So in Heimann v. The Commonwealth [(1938) 38 SR (NSW) 691 at 695] Jordan CJ, citing Bell v. Lever Brothers Ltd. [[1932] AC 161 at 226], stressed that in order to justify the importation of an implied term it is ‘not sufficient that it would be reasonable to imply the term. ... It must be clearly necessary’. To the same effect are the comments of Bowen L.J. in The Moorcock [(1889) 14 PD 64 at 68]; Lord Esher MR in Hamlyn & Co. v. Wood & Co. [[1891] 2 QB 488 at 491-492]; Lord Wilberforce in Irwin [[1977] AC at 256]; Scrutton LJ in Reigate v. Union Manufacturing Co. (Ramsbottom) [(1918] 1 KB 592 at 605-606].”

21. The Deed in the present case is a “detailed and comprehensive” contract such as referred to by Mason J in these observations. It contains detailed provisions about a variety of matters, including the grant and exercise of options to purchase multiple different properties. The provisions relating to each property differ significantly and there is no warrant for departing from the language used to attempt to establish an equivalence or compatibility between them when differences are clearly identified. For example, the options granted in respect of the Homestead Lot in cl 3 are at a stated price ($40,000,000) and are exercisable by reference to fixed periods of time (60 days). In contrast, the Yarranabbe Apartment options are exercisable at a price to be determined by valuations and similar, but not identical, time periods for exercise are specified. At least in the respects relevant to this appeal, the provisions of the Deed are unambiguous, as the primary judge effectively held.

22. I respectfully disagree with the primary judge’s conclusion that the BP Refinery tests for implying a term are satisfied. The provisions concerning exercise of the relevant option (cl 12.2(d)) were not unworkable such that it was necessary to imply a term to give them business efficacy. The option involved the grant of conditional rights to Mr Macarthur-Onslow which were well capable of exercise by him in the event that Mr Rogers obtained, as he was required to do, two valuations of the Apartment and calculated the midpoint of the valuations. It was by no means impossible for Mr Rogers to do this. He did not have to use any particular valuers and the valuations did not have to be of any particular character such as might take an extended time to prepare. The Sotherby’s valuation, which the parties implicitly accepted, complied with cl 8.1(d), was for example simply a three-page email referring to the valuer’s inspection of the Apartment and to three recent apartment sales of which details and photographs were provided. Moreover, if there was (as occurred) any delay in a valuer responding to a request for a valuation, it was open to Mr Rogers to approach another to ensure that he received it within the stipulated 60-day period.

23. There were thus many circumstances in which the option would not be “unworkable”, that is, in which the optionee would be able to exercise it in accordance with its terms. In the particular circumstances that occurred here, exercise was not possible but that did not render the option “unworkable”. Mr Macarthur-Onslow might have considered the 60-day period an unreasonably short period in which to exercise the option but equally the limitation to a
    60-day period might have been seen by someone in Ms Hobhouse’s position as a reasonable limitation on the option because it enhanced her prospects of obtaining the opportunity herself to exercise the option. There is no warrant for the Court attempting to determine whether the terms of the option were or were not reasonable. As stated by Mason J in Codelfa in [20] above, to justify the importation of an implied term it is ‘“not sufficient that it would be reasonable to imply the term. ... It must be clearly necessary” (see also Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 139; [1984] HCA 64).

24. In these circumstances, the term that his Honour implied was not necessary to give business efficacy to the contract because the option was effective without the implication. For the option to be effective in a business sense it did not need to be capable of being exercised in all conceivable circumstances. That it was capable of being exercised in many foreseeable circumstances was sufficient. The primary judge was, with respect, in error in attaching significance to the fact that the option could not be exercised “in every circumstance” (Judgment at [72](3) quoted in [19] above).

25. In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 241; [1986] HCA 14, the High Court found that the contract there under consideration was “capable of sensible operation in the absence of… implied terms” and that “the appellant’s submission amount[ed] to little more than an assertion that the terms are necessary to make the contract work in a manner that will avoid additional liability of the assured”. Likewise in the present case, the first respondent’s submissions amount to little more than an assertion that the implied term found by his Honour was necessary to make the contract work in a manner that enhanced Mr Macarthur-Onslow’s opportunity to exercise the option.

26. Moreover, it cannot be said that the need to imply a term to remove the restrictions on exercise of the option would have been regarded by a reasonable bystander as so obvious that “it goes without saying” and that the particular term implied by the primary judge would have been thought to be the obvious way in which the perceived unreasonableness would be addressed. Instead, a reasonable bystander might for example have considered that a requirement of lodgement of a deposit at the time of exercise of the option should not be abrogated altogether in the circumstances as they occurred (which was the effect of his Honour’s implication) but should be replaced by a requirement to lodge a deposit differently calculated.

27. Conditions (2) and (3) identified in BP Refinery were therefore not satisfied in the present case. As well, the implication was impermissible because it was inconsistent with the express terms of the contract (Condition 5).

28. Examples of inconsistency of this type can be found in a number of cases. For example, in Sanders v Snell (1998) 196 CLR 329; [1998] HCA 64 it was held that to imply a term into an employment contract which expanded the circumstances in which the employer could make payment of salary to the employee in lieu of notice of an intention to terminate the employment “would fly in the face of the express provisions in the agreement” (at [16]). An implication was likewise rejected on this basis in Besier v Foster (1952) 94 CLR 526; [1952] HCA 14 where it was held that the proposed implication “disregards what the words say and attempts to introduce into them a change of actual meaning” (at 530). Again, in Ikin v The Danish Club "Dannebrog" Inc [2001] VSCA 123 an attempt at implication failed because its effect would have been to add into a written contract of employment an additional ground for dismissal beyond those stated in the contract (see [17]).

29. Similarly, in the present case, the implication made by the primary judge had the effect, not of adding a term that could operate conformably with the express terms, but of directly contradicting them by changing the circumstances in which a deposit was required to be proffered on exercise of the option.

Relief against forfeiture

30. In light of the primary judge’s finding that Mr Macarthur-Onslow validly exercised the relevant option (because it was appropriate to imply into the Deed a variation to the express terms of the option), his Honour did not address the first respondent’s alternative contention that, if the option was not validly exercised, Mr Macarthur-Onslow’s estate was entitled to relief from an asserted forfeiture of an interest constituted by his rights under the option. By his Notice of Cross-Appeal in this Court, the first respondent raises that argument again and seeks relief from the forfeiture.

31. There are four principal issues that arise in this context:

1. Whether, prior to its exercise, the subject option conferred any proprietary rights on Mr Macarthur-Onslow;

2. If it did not, whether the Court’s jurisdiction to grant relief against forfeiture extends to rights merely contractual in nature;

3. Whether relief against forfeiture is available in respect of an ineffective exercise of an option; and

4. Whether relief should be granted in the circumstances of the present case.

32. As in my view the answer to (4) is clearly in the negative, it is unnecessary to address issues (1), (2) and (3).

33. In certain situations equity exercises jurisdiction to relieve against penalties and forfeitures, the distinction between these concepts being described in Legione v Hateley (1983) 152 CLR 406 at 445; [1983] HCA 11 (Mason and Deane JJ) as follows:

“A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation... On the other hand, forfeiture involves the loss or determination of an estate or interest in property or a proprietary right, e.g., a lease, in consequence of a failure to perform a covenant” (citation omitted).

34. In relation to forfeiture, the plurality in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [58] described the “special heads of fraud, accident, mistake or surprise” as identifying “in a broad sense” the circumstances that made it inequitable for the vendors in that case to rely upon their termination of the purchaser Tanwar’s contracts as an answer to Tanwar’s claim for specific performance. Their Honours indicated that those “special heads” do not necessarily delimit the extent of the equitable jurisdiction. Their Honours at [59] then cited the statement of Deane and Dawson JJ in Stern v McArthur (1988) 165 CLR 489 at 526; [1988] HCA 51, that the “circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or, more accurately, unconscientious – conduct”. Mason CJ however emphasised in Stern that “the jurisdiction to grant relief against forfeiture does not authorise a court to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side’s situation more favourable” (at 503). The plurality in Tanwar referred to this statement with approval (at [58]) and the High Court made a statement to similar effect in Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367; [2003] HCA 58 at [24].

35. As to the concept of “accident”, the plurality in Tanwar referred to relevant texts and continued:

“[66] [T]he learned writers on the subject emphasise and put to one side those situations where the event which has come to pass is one for which an express exculpatory provision might have been made, but was not sought or was not agreed to, and where to relieve against its consequences after it has occurred would deprive the other party to the contract of an essential right. In particular, equity will not relieve where ‘the possibility of the accident may fairly be considered to have been within the contemplation of the contracting parties’” (citations omitted).

36. In Tanwar itself the purchaser was unable to complete contracts for the sale of land due to a delay in it obtaining finance. The High Court denied relief against forfeiture on the basis that “[t]hat there might be a failure by a third party to provide the finance was reasonably within the contemplation of Tanwar” (at [67]).

37. In the present case, the first respondent did not assert that there had been any representation or other conduct by Ms Hobhouse which might have founded an estoppel, or that anyone had been mistaken in a relevant sense. Effectively all he was able to put was that, first, Ms Hobhouse knew that Mr Macarthur-Onslow wanted to obtain the Apartment by exercise of the option but she nevertheless relied in the Equity proceedings upon the strict terms of the Deed as to the manner in which the option had to be exercised and, secondly, that the fact that the second valuation was not obtained within the time required was an “accident” in the sense referred to in Tanwar (see [35] above).

38. The first submission does not advance the first respondent’s position. The parties entered into a detailed contract, in the form of the Deed, which, at least so far as it arose for consideration on this appeal, is not obviously unreasonable in its provisions. Whilst unconscionability at the time of entry into a relevant contract need not be established, reliance on its terms, particularly where the contract is detailed and apparently carefully drafted, is not, without more, unconscionable according to the principles referred to in [34] above. As noted above the High Court indicated in Romanos at [24] that:

“Equity does not intervene in such a case to reshape contractual relations in a form the court thinks more reasonable or fair where subsequent events have rendered the situation of one side more favourable to that of the other side”.

39. Similar to the position in Romanos, it is significant in the present case that Ms Hobhouse did not cause or contribute to Mr Macarthur-Onslow’s inability to exercise the option (see Romanos at [25]).

40. As to the second matter referred to in [37] above, the first respondent did not identify any evidence that rendered what occurred an “accident” in a relevant sense. There was for example no evidence that Mr Macarthur-Onslow took steps to urge or direct Mr Rogers to expedite his obtaining of the second valuation or to seek a valuation from another valuer. It was open to Mr Rogers to take these steps (whether encouraged or directed, or not) but there was no evidence as to why he did not do so. That there might be a delay in obtaining the valuations was eminently foreseeable and therefore, as with the delayed finance in Tanwar, reasonably within the contemplation of the parties (see at [67]).

41. For these reasons, the first respondent did not establish that there was any “accident” in the sense described in Tanwar or any arguably unconscientious conduct on the part of Ms Hobhouse. This is therefore not a matter in which equity would relieve against Ms Hobhouse’s reliance on the terms of the Deed to assert that Mr Macarthur-Onslow did not validly exercise his option to purchase the Apartment.

Orders

42. For the reasons given above, I propose the following orders:

1. Allow the appeal.

2. Dismiss the cross-appeal.

3. Set aside the orders made in the Equity Division on 11 June 2021 and in lieu thereof declare that the purported exercise by Mr Macarthur-Onslow on or about 22 April 2021 of the option referred to in cll 5.6 and 12.2 of the Deed of Settlement and Release of 22 February 2021 was ineffective.

4. Order the respondents to pay the appellant’s costs of the proceedings in this Court and in the Court below.

43. WHITE JA: I agree with Macfarlan JA.

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Amendments

29 August 2022 - Coversheet – corrected representation

Decision last updated: 29 August 2022