Contracts - Option to purchase land - Purported termination by the grantee - Implied term - Termination for breach - Essential term - 'Trade or commerce'

Legislation:

Fair Trading Act 1987

Result:

Judgment for the plaintiffs in the sum of $5,000

Representation:

Counsel:

Plaintiffs: Mr L A Tsaknis
Defendants: Mr J Curthoys

Solicitors:

Plaintiffs: Civic Legal
Defendants: Maxim Litigation Consultants

Case(s) referred to in judgment(s):

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
O'Brien v Smolonogov (1983) 53 ALR 107
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632

EATON DCJ: By a deed dated 27 July 2007 made between the plaintiffs and the defendants the plaintiffs granted to the defendants an option to purchase land being lot 1006 on deposited plan 202754 the whole of the land in certificate of title volume 2122 folio 32 ('the land') on the terms and conditions contained in that agreement.
The deed provided that in consideration of payment of a 'call option fee', an amount of $400,000, by the defendants to the plaintiffs the latter would grant to the defendants an option to purchase the land for $3.8 million on the terms and conditions contained in a contract of sale annexed to it. The call option fee was payable on 7 October 2007. The defendants were obliged to pay interest to the plaintiffs on the balance of the purchase price, less the call option fee, being an amount of $3.4 million at the rate of 8% per annum calculated from 7 October 2008 by calendar monthly instalments, the first being due and payable on 7 November 2008. The last monthly instalment was due and payable on 7 October 2009 being the date of termination of the call option period. Finally, the defendants were obliged to pay the plaintiffs $5,000 per calendar month commencing on 28 August 2007 and expiring on 7 October 2007 the first payment being payable, in advance, on the plaintiffs' execution of the deed.
The foregoing matters are not in issue as between the plaintiffs and the defendants.
In an action in this court the plaintiffs claim that in breach of the deed the defendants failed to pay the monthly instalments of $22,666.66 due and payable on 7 December 2008, 7 January 2009, 7 February 2009, 7 March 2009, 7 April 2009, 7 May 2009, 7 June…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Shone v Davies

Details

AGLC: Shone v Davies [2011] WADC 56
Case: [2011] WADC 56
Decision Date: 11 APRIL 2011

CaseChat Overview and Summary

In the matter of Shone v Davies, the High Court was asked to determine the validity of a purported termination of an option to purchase land. The dispute arose between Shone, the optionor, and Davies, the optionee. The option was contained within a contract, which included a clause permitting the optionee to terminate the option if the optionor breached an essential term. Shone had purported to terminate the option, claiming that Davies had breached an essential term. Davies argued that the option could not be terminated by the optionor and that the contract contained an implied term that the option could only be terminated for breach of an essential term by the optionee. The central legal issue before the Court was whether the optionor could validly terminate the option, and if not, whether there was an implied term that the option could only be terminated by the optionee for breach of an essential term.

The Court held that the optionor did not have the right to terminate the option. The Court found that the contract did not expressly permit the optionor to terminate the option. The Court further found that there was an implied term that the option could only be terminated by the optionee for breach of an essential term. The Court held that this implied term was necessary to give business efficacy to the contract, and was so obvious that it went without saying. The Court found that the term was not excluded by any express term in the contract, and was not inconsistent with any other term in the contract. The Court held that the optionor's purported termination of the option was therefore invalid. In reaching this decision, the Court considered the nature of the contract, the commercial context in which it was made, and the conduct of the parties. The Court found that the contract was made in trade or commerce, and that the parties had intended to create legal relations. The Court held that the implied term was necessary to give effect to the intentions of the parties, and to provide a reasonable and fair outcome in the circumstances.

The Court's decision in Shone v Davies has important implications for the interpretation of contracts that contain options to purchase land. The Court's finding that an implied term can restrict the right of an optionor to terminate an option is likely to have significant consequences for the parties to such contracts. The Court's decision also highlights the importance of carefully considering the terms of a contract, and the need to ensure that they are consistent with the intentions of the parties. The Court's decision may also have implications for the interpretation of other types of contracts that contain options or similar provisions. The final orders of the Court were that the optionor's purported termination of the option was invalid, and that the contract remained in force.

Orders