McMillan & Ors v. JH Honeycombe Investments Pty Ltd & Ors
[2007] QSC 346
•23 November 2007
SUPREME COURT OF QUEENSLAND
CITATION:
McMillan & Ors v J.H. Honeycombe Investments Pty Ltd & Ors [2007] QSC 346
PARTIES:
JOHN ALEXANDER MCMILLAN and CATHERINE ANNE MCMILLAN and RODNEY NORMAN BROWN and CATHERINE MARY BROWN and NOYAX PTY LTD (ACN 011 002 501)
(applicants)
v
J.H. HONEYCOMBE INVESTMENTS PTY LTD
(ACN 009 951 973)
(first respondent)
and
DELTA INVESTMENTS PTY LTD
(ACN 010 493 295)
(second respondent)
and
JOHN HAROLD HONEYCOMBE
(third respondent)FILE NO:
BS 2268 of 2007
DIVISION:
Trial
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
23 November 2007
DELIVERED AT:
Brisbane
HEARING DATE:
15 October;
JUDGE:
Chesterman J
ORDER:
Application dismissed
CATCHWORDS:
CORPORATIONS – SHARE CAPITAL – SHARES – SHARE OPTIONS - where the applicants and first respondent were shareholders in a company and beneficiaries under a unit trust – where the parties entered into an agreement with the first respondent granting the applicants an option to purchase the first respondent’s shares in the company – where the agreement also provided for a contemporaneous exercise of options in relation to the unit trust - where a valid exercise of the option was subject to specific conditions including time and notice provisions – where the applicants gave the third respondents notice of an intention to exercise the share options – where the third respondent replied suggesting a joint valuation of the shares be made and questioned whether the notice also purported to exercise the unit trust options – where the applicants did not respond – where after the passage of time the third respondent advised that the options had not been exercised correctly – whether the purported exercise was valid
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONDITIONS – WAIVER OF CONDITIONS - where the applicants contend that certain alleged conduct and statements by the third respondent constituted a waiver of the requirements for a valid exercise – whether that alleged conduct in fact occurred – whether the third respondent’s conduct constituted a waiver – whether the conduct of the parties was such as to evidence an agreement to sell the shares at their value as at the time of the purported exercise
ESTOPPEL – EQUITABLE ESTOPPEL – REPRESENTATION – where the applicants argued that notwithstanding the breach of the conditions attached to the options the third respondent represented to the applicants that he would not rely on those conditions – where the applicants submited that they relied on that representation - whether the evidence supported the applicants’ claim that such a representation was made - whether the third respondent was estopped from relying on the contractual time and notice conditions in the agreement – whether the respondent was entitled to enforce the conditions in the option agreement
Australian Hardwoods Pty Ltd v The Commissioner for Railways (1960) 60 SR NSW 649, applied
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, appliedCOUNSEL:
Ms S Anderson for the applicants
Mr J Bell Q.C, with him Mr J Sweeney for the respondentsSOLICITORS:
Jeff Thomas & Associates for the applicants
Ruddy Tomlins & Baxter for the respondents
The applicants and the first respondent are shareholders in a company, Honeycombe Sales and Service Pty Ltd (‘Sales and Service’). By a share sale agreement dated
12 April 1999 between the applicants and the first respondent the latter gave the applicants an option to purchase the shares it owned in Sales and Service. The applicants contend that they exercised the option in circumstances by which the first respondent is precluded from denying that the option was duly exercised. The first respondent has refused to sell its shares to the applicants who seek declarations and orders compelling the transfer of the shares.
The first respondent denies that the option was exercised according to its terms, and denies that it is estopped from asserting that denial.
Sales and Service has for many years carried on business as a seller of motor vehicles and farm machinery in North Queensland. The third respondent,
Mr John Honeycombe, whose family commenced the business, worked in it for more than half a century. He was its manager for about 30 years. Mr Peter Carcary has also worked in the business for many years. He became friendly with
Mr John Honeycombe who rewarded his commitment to Sales and Service by selling 25 per cent of the shares in the company to Noyax Pty Ltd, Mr Carcary’s company and one of the applicants.
CMH Machinery Pty Ltd (‘CMH’) owns land in Ayr, from which Sales and Service principally conducts its business, as trustee of a unit trust (‘CMH Trust’), the units of which are held for the shareholders in Sales and Service in the same percentages as their respective shareholdings.
Between 1989 and 12 April 1999 there were 100 issued shares in Sales and Service. Noyax Pty Ltd (‘Noyax’) held 25 and the first respondent (‘Investments’) the remaining 75. Investments was a company owned and/or controlled by
Mr John Honeycombe.
Mr and Mrs McMillan and Mr and Mrs Brown are friends of Mr Carcary’s. In 1999 Mr Carcary suggested to Mr Honeycombe that he sell them some of the shares which Investments held in Sales and Service. As a result the agreement of
12 April 1999 was made by which Investments sold, and Noyax bought, 10 additional shares in Sales and Service, and Mr and Mrs McMillan and
Mr and Mrs Brown between them bought 35 shares. Investments retained 30 shares.
As I mentioned the agreement contained provisions by which the applicants could, at their option, buy Investments’ remaining shares.
The agreement was made between Investments (designated ‘JHHI’), Noyax (designated ‘Carcary’), Mr and Mrs McMillan and Mr and Mrs Brown (collectively designated ‘McMillan’), Sales and Service (designated ‘the company’) and
Mr Honeycombe (designated ‘John’). Clause 7 provided:
‘7. Options in relation to JHHI’s retained interest
A. Operative:
Noyax and McMillan shall have the option to purchase JHHI’s retained interest (remaining shareholding) at any time over the period of 10 years from the settlement date. Conditions attaching to such option shall include:
(i)At any time the minimum number of shares to be purchased shall be 2.5% of the issued shares in the company. Noyax and McMillan shall give Honeycombe three months notice of the intended acquisition. A valuation of the company shall be made by Mr Chris Land of Chris Land & Associates, accountants, which valuation shall be available three months after notification shall have been given on the intended acquisition of the shares. The effective date for the valuation shall be the date of giving notice … . Settlement of the purchase moneys … shall be made within one month of valuation, that is within four months of the notification of acquisition … .
(ii)In the event that Mr Chris Land … shall be dead or otherwise unwilling or unable to provide the valuation referred to, or if he shall for any reason fail to provide the same within the time limited, then … the valuation shall be made … by such accountant or valuer as JHHI, Noyax and McMillan may mutually agree upon. In the event that they shall be unable to agree on the identity of an alternative valuer, then same shall be appointed by the President … of the Queensland Law Society …
B.Calculation of purchase price
For the purpose of clause 7A … the following conditions shall apply …:
(i)In the calculation of the value of the shares … the value of one ordinary share shall be equal to 1% of the net tangible assets of the company. Any other shares will have a value of $1 each;
(ii)In calculating the net tangible assets of the company the value per share (1%) of the goodwill of the business shall be fixed at the sum of $4,543 and the other assets of the company … will be taken at their values shown in the financial statements of the company using the same methodology as used presently.
D.Options subject to exercise of options in unit trust
Noyax and McMillan hold options in respect of units held by Delta Investments Pty Ltd in the unit trust known as ‘the CMH Unit Trust’ similar to those options set out in paragraph A above. It is acknowledged and agreed that the options set out in A above may only be exercised if Noyax and McMillan contemporaneously exercises (sic)the options which they hold in respect to the said units to the same percentage of units as to the percentage of shares which they at that time elect to acquire … pursuant to paragraph A …’
Clause 21.1 of the agreement provided that time was of the essence of its terms.
Delta Investments Pty Ltd (‘Delta’) was the trustee of the JH Honeycombe Family Trust and it was the unit holder of the units in the CMH trust of which
Mr Honeycombe and/or his family interests were the beneficiaries.
Also on 12 April 1999 a deed was executed between Delta, Noyax,
Mr and Mrs McMillan and Mr and Mrs Brown on the one part, and CMH on the other. The deed constituted the CMH trust, the units in which were held by Delta, McMillan and Noyax in the same proportion as they respectively held shares in Sales and Service.
Clause 9 is entitled ‘Transfer of Units and Pre-emption Rights’. It includes subclause 4:
‘Fair Value
The trust auditor, or if no auditor is appointed the Trust’s accountant … shall on the application of the trustee or any unit holder certify in writing the sum which in the auditor’s opinion is the fair value of a unit … for the purposes of this clause. In so certifying the auditor shall … be acting as an expert and not as an arbitrator and the determination … shall be final and binding on the unit holder. It is expressly acknowledged and agreed however in calculating the fair value of a unit that the value to be attributed to the land and buildings described in the second schedule … (which the trust proposes to acquire) shall be the sum of $1,755,000.’
Clause 10 provided:
‘Options in respect of Delta’s units
(1)Until the 30th day of June 2009 Carcary and McMillan shall have the option to purchase Delta’s unit holding at any time. The conditions attaching to such option are:
(a)At any time the minimum number of units to be purchased shall be 2.5% of the issued units in the trust. Carcary and McMillan shall give Delta three months notice of the intended acquisition. The fair value of the units shall be determined by the trust’s auditor … which valuation shall be available three months after notification shall have been given of the intended acquisition of the units. The effective date of the valuation … shall be the date of giving notice … . The fair value of the units shall be determined in accordance with the provisions of clause 9(4). Settlement of the acquisition … shall be completed within one month of the determination of the fair value, that is within four months of notification of acquisition as referred to above.
(2)Carcary and McMillan hold options in respect to shares owned by JH Honeycombe Investments Pty Ltd in … Sales and Service … similar to those set out in paragraph (1) above. It is acknowledged and agreed that the option set out in (1) above may only be exercised if Carcary and McMillan contemporaneously exercise the options which they hold in respect of the said shares for the same percentage of shares as the percentage of units which they at that time elect to acquire in this trust pursuant to paragraph (1) above.
By clause 24 of the deed:
‘… any notice or demand given under this deed to be properly made … shall be in writing and where … given by an individual signed by such party personally or by … attorney acting for such party or by any agent … authorised in writing and where … given by a company … executed under seal or by any director of the company or … solicitor or by … agent authorised in writing.’
Lastly one must notice a provision of a shareholders’ agreement also dated
12 April 1999 between Investments, Noyax, Mr and Mrs McMillan,
Mr and Mrs Brown and Mr Carcary by which the shareholders in Sales and Service agreed to regulate their relations inter se for the conduct of its business. Clause 7 was headed ‘Company Finances’ and provided inter alia:
‘In the case of external borrowings by (Sales and Service) (it) shall provide such security as it is able so to do and as is reasonably required to satisfy … any external financier. In the event of that security being insufficient … then (Investments, Carcary and McMillan) shall provide such security as is required to the same extent and in the same proportion and value as each of those parties’ respective shareholdings in (Sales and Service) … . In the event that in the future any parties’ shareholding in (Sales and Service) increased or decreases then that party’s obligation to provide the security … shall vary accordingly with such shareholding. …’
By a notice of exercise of option to purchase dated 31 December 2005 addressed to Investments the applicants:
‘In accordance with clause 7A of the agreement … give you notice that they exercise the option to purchase all the issued shares you still hold in … Sales and Service …’
Mr Honeycombe, to whom the notice was delivered, sent a copy of it to his solicitor and asked for his ‘advices in this matter’. Mr Honeycombe duly obtained advice and responded to the applicants in accordance with that advice on 4 January 2006. He wrote:
‘This company acknowledges receipt of your notice of exercise of option to purchase with respect to the remaining shareholding of this company in … Sales and Service … . It is presumed that you also wish to exercise your option to purchase this company’s units in the CMH Unit Trust. Would you please confirm.
If this is then in fact the case, I suggest that we jointly instruct Mr Chris Land to prepare a valuation of the company on the basis set out in the share sale agreement … . If you agree … I will arrange for a draft letter of instruction to be prepared and will submit same to you for your approval prior to dispatch to Mr Land.
I look forward to receiving your response as soon as convenient.’
None of the applicants replied to Mr Honeycombe in writing. They did not deliver a notice of exercise of option to purchase Delta’s units in the CMH Unit Trust. Nor did Mr Honeycombe prepare a draft letter of instruction to Mr Land and submit it to the applicants for their approval. No joint instruction from Mr Honeycombe and the applicants was given to Mr Land.
Mr Carcary is, in effect, the managing director of Sales and Service.
Mr Honeycombe is no longer directly involved in the management of that company but he has extensive business interests throughout North Queensland and he occupies an office in the premises of Sales and Service adjacent to Mr Carcary’s office.
In his affidavit filed in support of the application Mr Carcary deposed that ‘shortly after 4th January 2006’ he and Mr Honeycombe ‘confirmed verbally that the exercise of the option was to include the CMH Unit Trust …’. Mr Carcary expanded his account in oral evidence. He said:
‘I went up to Mr Honeycombe’s office and told him that I had got his letter and that I understood that the option was to include CMH and Mr Honeycombe said that you couldn’t buy one without the other so it had to be.’ (T24.30)
Mr Honeycombe denies the conversation. He deposed that none of the applicants ever discussed with him his letter of 4 January and never mentioned a proposed acquisition by the applicants of Delta’s units in the CMH Trust. He reaffirmed his denial, adamantly, in oral testimony. (T164)
I accept his denials. They have documentary support. On 28 August 2006
Mr Honeycombe’s solicitors wrote to the applicants’ solicitors asserting that the option had not been validly exercised and conveying Mr Honeycombe’s refusal to sell his shares at their December 2005 valuation. One of the arguments advanced in support of his position was that the applicants had not given notice of exercise of their option to buy Delta’s units in the unit trust. The applicants’ solicitors replied the next day. They wrote:
‘… We … suggest that your client is now estopped from that particular stance given that our clients have relied upon the contents of Mr Honeycombe’s letter of 4th January 2006 wherein he presumed that our clients wish to exercise their option to purchase the units in CMH Unit Trust and recalls his subsequent conduct in having Mr Land prepare a valuation …’.
There is no reference to a conversation on or about 6 January.
On 1 September Mr Honeycombe’s solicitors reaffirmed his refusal to transfer shares in accordance with the exercise of the option which he continued to assert was invalid. Another firm of solicitors replied on behalf of the applicants on
29 September 2006.
They referred to Mr Honeycombe’s letter of 4 January 2006 in which he had said:
‘It is presumed that you also which to exercise your option to purchase this company’s units in the CMH Unit Trust.’
and went on:
‘Following that notice parties jointly instructed Mr Chris Land to prepare a valuation of the company on the basis set out in the share sale agreement. That continued performance of the agreement … means that Mr McMillan and Mr Carcary did confirm the presumption made by your client …
The share sale agreement did not require by clause 7A that notice be given in any particular way. In fact, other clauses … require that notice be given in writing. This clause does not require notice to be given in writing. It is the case that notice was given of the exercise of the option to purchase the shares … in writing on 31 December 2005. Notice was then given by performance that our clients also wished to exercise the option to purchase the company’s units in the CMH Unit Trust.’
It is significant that the solicitors did not assert that there had been a conversation between Messrs Honeycombe and Carcary in which the matter had been discussed and Mr Carcary orally gave notice of the exercise of the option to purchase the units. Mr Carcary, when asked about the omission, could not explain why neither firm of solicitors had mentioned the conversation on which he now relies to satisfy clause 7D.
Equally significant is the course taken by the pleadings. In the Statement of Claim filed on 22 May 2007 the applicants’ case was put on the same basis as the correspondence: that by a course of conduct undertaken to perform the requirements of the option agreement the parties had expressed their agreement to a sale of shares and units pursuant to the options. By an Amended Statement of Claim filed 13 June 2007 reliance was placed on some events and conversations, none of which included Mr Carcary’s conversation ‘shortly after 4 January’ to which he deposed. That was first relied upon in the Further Amended Statement of Claim filed by leave on 16 October 2007.
I therefore find that the applicants did not exercise the option to acquire Delta’s units in the CMH Trust. They do not contend they did so in writing. I am satisfied they did not do so orally.
It should be pointed out that to be valid the exercise of the option had to be in writing. The option to acquire Investments’ shares was conditional upon the applicants contemporaneously exercising the options which they held to acquire Delta’s units. Clause 10 of the trust deed provides, as I have set out, that the option was to be exercised by the applicants giving three months’ notice of their intention to acquire the units. This obviously refers to a notice of the type to which clause 24 of the trust deed refers. That requires any notice to be in writing.
I will return to the legal significance of the applicants’ failure to give notice to Delta of their desire to exercise the option to purchase the units. For the moment I will continue with the narrative.
Clause 7 of the share sale agreement required the appointment of Mr Land to value Sales and Service and to produce his valuation within three months of the notice given by the applicants to Investments that they intended to exercise the option. The clause did not specify who should approach Mr Land and request the valuation. Either optionee or optionor could make the appointment: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 605.
Mr Carcary, in his affidavit, glosses over this event which does have a significance. He deposed that following his conversation with Mr Honeycombe (which I found did not occur):
‘In accordance with this Chris Land was instructed to prepare a valuation and all necessary documentation … requested by him, had been submitted … by early February 2006.’
Mr Carcary’s narration continues:
‘The valuation had not arrived by mid-March and on 16th March 2006 I told Mr Honeycombe … “It appears unlikely we will be able to settle by the time required as we have not been able to finalise our finances (as we have not yet received a figure from the valuer)”. … Mr Honeycombe said in response, “That’s fine. How long will it be?”. I then said I thought it would be a month or six weeks and Mr Honeycombe agreed to delay settlement without any apparent reservations on his part. It was clearly implied in this conversation that he did not expect us to settle until a month after the valuation had been received.’
By para 10 of their Statement of Claim the applicants pleaded that Mr Land was instructed by Mr Honeycombe to prepare a valuation. By para 10A of the Further Amended Statement of Claim it was alleged that on 9 January 2006 Mr Carcary telephoned Mr Land and instructed him to prepare a valuation of the shares in Sales and Service, and Mr Land agreed to do so.
Mr Honeycombe denies any part in giving instructions to Mr Land to prepare the valuation. He denies having any discussions with Mr Carcary about appointing
Mr Land.
Mr Land
supports Mr Honeycombe’s account. He deposes that Mr Honeycombe sent him a copy of the Notice of Exercise of Option of 31 December 2005 and he read it when he returned from holidays on 9 or 10 January 2006. At about the same time Mr Honeycombe spoke to him and said that he ‘would be called on to do the valuation at some stage down the track.’ Mr Land said that nothing could be done until he received the financial statements for Sales and Service to the end of the year, 31 December 2005. Early in February 2006 Mr Land again spoke to
Mr Honeycombe and told him that he would need financial statements for the three previous years if he was to prepare the valuation by 31 March 2006 and he had not been given the materials. Mr Honeycombe replied that he thought the sale might not proceed because the applicants were having difficulty in obtaining finance. The upshot of the conversation was that Mr Land was told to do nothing without further instructions. By 21 March 2006 Mr Land received the financial statements for Sales and Service for the year ended 31 December 2005. He spoke to Mr Honeycombe and asked if his valuation was required. Mr Honeycombe said that he ‘had not heard anything further’ and that he would ‘get back’ to Mr Land if he was to prepare the valuations.
According to Mr Land, Mr Carcary rang him on 21 July 2006 to say that the applicants had obtained the finance necessary for them to proceed with the acquisition of shares in Sales and Service and that ‘everything would go ahead’ by which I assume is meant that he was to prepare the valuation. Mr Land did not have the financial statements for the years ended 2003 and 2004 but was sent them on
27 July and was given some further information which he needed on the same day. He commenced his valuation exercise on 6 August and delivered it on 8 August to Sales and Service, Mr Honeycombe, Mr Carcary and Mr McMillan.
I accept the evidence of Mr Honeycombe and Mr Land. I am satisfied that Mr Land was not instructed to prepare his valuation of the shares in Sales and Service until 21 July 2006. I have considerable reservations about Mr Carcary’s evidence. I have already rejected his testimony of the conversation with Mr Honeycombe early in January 2006. As will emerge later in these reasons I cannot accept his account of the conversation on 16 March. Mr Honeycombe was not, I thought, dishonest but some statements made in his affidavit were careless and the errors tended to support his case. There is, however, no reason why Mr Land should not be accepted. He is a professional man with no interest in the outcome of the litigation. It is true that he has been friendly with Mr Honeycombe for many years and has performed accounting services for him and his companies but he is equally well known to Mr Carcary. Moreover there is support for his evidence in contemporaneous correspondence.
In an undated letter but faxed to Mr Land on 27 July 2006, the assistant manager of Sales and Service, Mr Connor, wrote:
‘Re: Valuation of Honeycombe Sales and Service
The above valuation was requested of you in January 06 and was to be supplied by 31 March 06. Peter Carcary has advised, that despite repeated requests this valuation has not been received.
Would you kindly forward the valuation within the next 7 days.
If there is some reason why this cannot be done would you kindly phone the writer.’
Mr Land replied on 28 July:
‘We have been waiting for final instructions on valuation of the business for many months. Details were supplied to us before the 31st March 2006 but at the time of being supplied … Mr … Honeycombe advised that he had heard that there was difficulty in obtaining the finance. In April and May John had phoned … and advised that there was still … no word as to the finance. … On 19 July 2006 I phoned Mr Honeycombe to see what the situation was as I had … no further advice as to when to finalise things. I then phoned Mr Carcary … and asked if he knew what the situation was and he advised … that he was not … sure … . Peter returned a call … on 21st July advising me that … finance had been approved and to go ahead …’
It is significant that the valuation was completed within about a week of Mr Land being instructed to prepare it. There is no apparent reason why he would not have moved as quickly had he been asked to perform the valuation in February or
March 2006. He was aware of the time limit imposed by the option agreement. It is equally significant that there is no evidence of any complaint by or on behalf of
Mr Carcary or the other applicants that he had not prepared the valuation earlier, as requested. The only complaint is found in Mr Connor’s letter which brought forth Mr Land’s immediate refutation.
There is, as well, circumstantial corroboration for Mr Land’s assertions. The applicants were delayed in their acquisition of Investment’s shares in Sales and Service by a lack of finance. The problem was not with their financial capacity to pay Investments for its shares. The amount required was relatively small, about $1,700,000 and the applicants are people of substantial wealth. The problem lay in obtaining financial accommodation to allow Sales and Service to operate without the security offered by Mr Honeycombe and his companies. The business was large and expanding. New vehicles were bought and displayed on a ‘floor plan’ arrangement, a bailment agreement with Esanda, the limit of which was $4,000,000. As well very expensive items of John Deere farm machinery were sold by Sales and Service which had to pay for machines and parts which it onsold to its customers. The business was conducted with a view to limiting the time between outlay and recoupment from customers, but nevertheless substantial banking accommodation was required. That had been provided by Esanda when Mr Honeycombe was the major shareholder in Sales and Service, but that company told Mr Carcary in
mid-January 2006 that it would not continue to fund Sales and Service without
Mr Honeycombe’s substance.
There followed a lengthy attempt by Mr Carcary to obtain finance from an alternative lender. He engaged the services of BDO Kendalls to assist in the search but it was not until 21 July 2006 that Capital Finance offered to lend Sales and Service sufficient to allow the business to continue without Mr Honeycombe.
Very quickly, as I have described, Mr Carcary moved to instruct Mr Land to prepare the valuation.
These events explain why Mr Land had not been asked to prepare his valuation earlier, and corroborate in some detail the chronology set out in Mr Land’s refutation to Mr Connor. One may note the coincidence that Carcary telephoned
Mr Land on 21 July, the date that Capital Finance’s offer was received, and told him that the applicants would proceed with the purchase.
Counsel for the respondent points to communication between Mr Honeycombe and Mr Land in February and March 2006 and submits that it shows an appointment of Mr Land by Mr Honeycombe to effect the valuation. I accept the evidence of both witnesses that all that happened was that Mr Honeycombe advised Mr Land that he could expect to be appointed to perform the valuation because he had received the notice of 31 December 2005, and then told Mr Land not to proceed because of the difficulties the applicants had with finding a lender.
It might also be noted that the applicants’ case with respect to the appointment of the valuer was in disarray.
Mr Carcary’s initial suggestion appears to have been that he and Mr Honeycombe jointly appointed Mr Land. This appears in the applicants’ solicitors’ letter of
29 September 2006 in which it was said that following the notice ‘parties jointly instructed Mr Chris Land to prepare a valuation of the company …’. This is also asserted in Mr Carcary’s affidavit which I quoted. There is, however, no evidence of this joint appointment. Mr Honeycombe denies it and Mr Carcary accepted that he never spoke to Mr Honeycombe about appointing Mr Land (T29.40).
Mr Carcary then gave evidence that he appointed Mr Land in a telephone conversation on 9 January 2006. This of course irreconcilable with the allegation in para 10 of the statement of claim that Mr Honeycombe made the appointment.
Thirdly, the applicants argued, in accordance with para 10, that Mr Honeycombe had appointed Mr Land. As I have explained I am satisfied there was no such appointment.
One thing is clear. Mr Bugden, the auditor or accountant of the CMH Trust was not asked to prepare a valuation of the units in the trust until 18 August 2006. It was prepared the same day. Everyone involved appears to have overlooked the need for that valuation.
The chronology can be completed quickly. When Mr Honeycombe became aware that the applicants had obtained finance and wished to proceed with the purchase of Investment’s shares he expressed resistance because the valuation, so long delayed, was of the business as it was at 31 December 2005. It had grown substantially in profitability in the ensuing months and a contemporary valuation would have yielded a higher figure. On 21 August 2006 Mr Honeycombe wrote to the applicants, referred to the delays, and said that he ‘understood the Notice of Exercise of Option was invalid’. There followed an exchange of correspondence between the solicitors and an attempt by the applicants to acquire Investment’s shares by proffering appropriate transfer documents and a sum of money calculated from the valuation. The respondents refused to execute the transfers or accept the proffered consideration. Proceedings to enforce the exercise of the option were commenced by application on 14 March 2007.
The share sale agreement allowed the applicants 10 years in which to exercise their option to purchase Investments’ shareholding. The option could be exercised any time within the decade commencing 12 April 1999, and could be exercised for all or part of the shareholding so long as at least 2.5 per cent of Investment’s shares were acquired pursuant to any one exercise of the option. There could be several exercises until the whole of the shareholding was acquired. Because the value of the shareholding was expected to vary over time, and might be expected to fluctuate markedly, the contract provided for three separate steps by which the option was to be exercised and the shares acquired.
Firstly a notice was to be given of the intention to purchase shares. Secondly there was to be a valuation of the shares by a nominated valuer pursuant to a specified method of valuation. The valuation was required within three months of the notice. Thirdly, the applicants were required to pay the price fixed by the valuation no later than one month after preparation of the valuation.
It was a condition of the exercise of the option to buy shares that the applicants also bought the units held by Delta in the CMH Unit Trust. The option conferred on the applicants to buy those units had to be exercised contemporaneously. The trust deed provided a similar mechanism: notice, valuation within three months, and settlement within one month of valuation.
It is, I think, clear that for its valid exercise the option required fulfilment of all conditions. The applicants did not become entitled to Investment’s shares on giving written notice of its intention to acquire them on 31 December 2005. Its right to acquire the shares was dependant upon notice, valuation and payment in accordance with the valuation, as well as the similar exercise to acquire the units. No doubt if the first respondent refused to accept payment in circumstances where all conditions had been fulfilled by the applicant the court would enforce the option agreement. Nevertheless the applicant’s right to an order compelling the first respondent to sell its shares is contingent upon the applicant having satisfied the conditions. This I think is established by Australian Hardwoods Pty Ltd v The Commissioner for Railways (1960) 60 SR NSW 648 at 653-4. The court (Evatt CJ, Herron and Sugarman JJ) said (654):
‘The notice required by … the agreement is not in itself an exercise of the option … but is intended as a notice that the company proposes to exercise the option to be given three months in advance of its exercise. It is required to specify the item or items which the contractor “proposes to purchase” and the reason for requiring the notice and the specification is … to allow an interval for calculation … of the purchase price in accordance with the formula provided … . The purchase price is … to be paid … “in cash upon the exercise of the option”. … These provisions … show that … the notice in writing is one thing and the actual exercise of the option another and later thing …’
It is also established by authority that an optionee wishing to take advantage of the right conferred on him must comply strictly with the terms of the option agreement. Willmer LJ said in Hare v Nicoll [1966] 2 QB 130 at 141:
‘It is well established that an option for the purchase … of a property must in all cases be exercised strictly within the time limited for the purpose. The reason for this, as I understand it, is that an option is a species of privilege for the benefit of the party on whom it is conferred. That being so, it is for that party to comply strictly with the conditions stipulated for the exercise of the option.’
In Booker Industries, a case involving an option to renew a lease at a rent to be agreed or failing agreement to be fixed by an arbitrator, Gibbs CJ, Murphy and Wilson JJ said (605):
‘… In the circumstances … there is a valid agreement for the renewal of the lease subject to the fixation of a rental for the new term. The fixation of that rental is a condition precedent to the performance of the agreement.’
The facts I have recited establishes that the applicants did not exercise the options in the manner specified by the share sale agreement. Time was of the essence. The valuation of the shares was to occur within three months of the notice, i.e. by
31 March 2006. It was not requested until late July and was not delivered until
8 August. The valuation of the units was not prepared until 18 August but that would appear to be both inconsequential and irrelevant. No notice was ever given of the applicants’ intention to acquire the units. The due exercise of the option to acquire the units was a condition precedent to the applicants’ rights to acquire Investments’ shares.
It follows from the principles I have mentioned that the applicants are not entitled, as a matter of contract, to the relief they seek. Their case is put differently. It is submitted that the conversation to which Mr Carcary deposed, between him and
Mr Honeycombe on 16 March 2006, has altered the parties’ contractual rights. The conversation, which I set out in para 31 of these reasons, is said to amount to a waiver of the contractual requirements as to time and to the giving of notice to acquire the units. It is more forcefully submitted that Mr Honeycombe’s remarks amount to a representation on which the applicants relied to their detriment by not complying with the contractual conditions. The result is said to be that the respondents are estopped from denying that the option to exercise the purchase of shares and units were validly exercised. The estoppel is said to be promissory in nature. The representation was to the effect that the purchase of the shares and units was to await the date the applicants obtained finance, on terms satisfactory to them, to allow them to conduct Sales and Services’ business.
The arguments in support of and against the estoppel were detailed and, indeed, complicated. It is not necessary to consider them unless it first be established, as a matter of fact, that Mr Honeycombe spoke the words ascribed to him. I am not satisfied that he did. I think the conversation is largely an invention of
Mr Carcary’s.
The conversation deposed to was this: Mr Carcary said ‘It appears that we will be unable to settle as required as we have not been able to finalise our finance (as we have not yet received a figure from the valuer)’; to which Mr Honeycombe said: ‘That’s fine. How long will it be?’ Mr Carcary replied: ‘A month to six weeks.’
Mr Honeycombe denies there was ever such a conversation.
More significantly it is not mentioned in the exchange of solicitors’ correspondence which followed upon Mr Honeycombe’s intimation on 21 August 2006 that the option had not been properly exercised. The applicants’ solicitors replied on
23 August 2006 but said nothing about a conversation in which time ceased to be of the essence and was extended until the applicants obtained finance. There is a similar but more significant omission in the applicants’ solicitors’ subsequent letter of 29 August 2006. They ‘respectfully suggest(ed) that (the first respondent) is … estopped from that particular stance given that (the applicants) … relied upon the contents of Mr Honeycombe’s letter of 4 January 2006 … and his subsequent conduct in having Mr Land prepare a valuation of the shareholding …’. The failure to mention the critical conversation is startling given the reliance plead upon it to support an estoppel to ameliorate the effect of the contractual conditions as to the exercise of the option. The applicants’ case at trial was that the conversation was the fact which led to the delay in the settlement.
Equally significant is the reason which Mr Carcary said he advanced in the alleged conversation for requiring an extension of time. It was that the applicants had been unable to complete their application for finance because they had not received the valuation. The fact is that by 16 March 2006 Mr Land had not been approached to prepare his valuation and Mr Carcary had no reason to think he was preparing it.
Moreover it is untrue that the valuation was required in order to raise the necessary purchase money for the shares in units. The implication was that until the valuation provided the figures the applicants would not know how much to borrow. But both Mr Carcary and Mr McMillan were aware of how much they would need, at least in round terms.
On 1 March 2006 Mr McMillan sent Mr Carcary by facsimile transmission ‘a summary of our finance requirements …’. He estimated that they would require $1,200,000 to buy Investments’ shares in Sales and Service and a little over $500,000 to acquire Delta’s units. When asked about this Mr Carcary said:
‘And you will see in the last line he has been reasonably precise in relation to the amount that he envisages it will be necessary to pay for the shares? – Yes.
At least sufficient for the purpose of finance applications; correct? – Yes. (T.80.38-.42)
Well, Mr Carcary, … in March 2006 you and McMillan were in a position where you had a pretty good idea how much you had to pay to Mr Honeycombe’s interests to buy the 30 per cent shares in units, weren’t you? – Yes. (T82.40)’
If Mr Carcary said the things he testified to he was telling lies. They were false, and he had no reason to say them. I do not think he did.
Although I am satisfied that the alleged conversation did not occur there is some documentary evidence that there was a conversation between the two men in
March 2006. It is impossible to find what was said from the fragments which, in any event, are inconsistent with Mr Carcary’s testimony that there was an open ended extension. On 16 March 2006 Mr Carcary sent Mr McMillan an email:
‘Spoke with John Honeycombe and told him we should be right to settle by the end of May, indicated he was fine with that.’
The next day Mr Carcary sent an email to Mr Crothers, the accountant with
BDO Kendalls who was assisting in the applicants’ endeavours to obtain finance:
‘… I spoke to John Honeycombe yesterday and told him I thought we would be okay for an end of May settlement.’
Mr Honeycombe, as I mentioned, denied having a conversation with Mr Carcary about extending the date for settlement. It seems from the contemporary record that there was some discussion in which Mr Carcary said that the applicants hoped to be in a position to settle the purchase of the shares by 31 May 2006. Given my reservations about Mr Carcary’s testimony I am not prepared to find that
Mr Honeycombe went so far as to say he was untroubled by such a suggestion. That attribution appears in one of Mr Carcary’s communications but not the other. The most the evidence permits by way of a finding is that Mr Honeycombe and
Mr Carcary spoke on 16 March 2006 and Mr Carcary said that the applicants hoped to be able to complete the purchase of the shares by 31 May 2006. It is not possible to find what, if anything, Mr Honeycombe said in reply.
The consequence is that the applicants have not made out the factual basis necessary for their pleas of waiver or estoppel to succeed. In any event the actual conversation sworn to would not establish the necessary representation. An assent to a delay to 31 May does not amount to an unlimited extension of the time within which the option could be exercised. Even if Mr Honeycombe had indicated his assent to a settlement as late as 31 May 2006 there is no warrant for construing that as a representation the applicants could have as long as they took to obtain finance. I do not accept that an extension of time to the end of May for settlement could be understood by any reasonable representee as meaning that they could have until August, or as long as they took to obtain finance satisfactory to them.
Mr Honeycombe knew, as well as the applicants, that the value of the shares was increasing. The applicants had a right to exercise the option at any time before April 2009. There is no reason why Mr Honeycombe would jeopardise his return on the shares to accommodate the applicants who had a right at any time to buy the shares for their then fair value.
It is not sensible to think that Mr Honeycombe would have made such a representation. I am satisfied he did not.
The application must be dismissed.
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