Silverstein, R.D. v Morton, R.W

[1994] FCA 164

IN THE FEDERAL COURT OF AUSTRALIA)

)

AUSTRALIAN CAPITAL TERRITORY 1

No. ACT G 55 of 1991

DISTRICT REGISTRY

GENERAL DIVISION

BETWEEN: RONALD DAVID SILVERSTEIN

Applicant

AND: ROBERT WILLIAM MORTON, trustee

of the Estates of Mlchael
Francis Buggy and Leonie

Frances Buggy, bankrupts

Respondent

MINUTE OF ORDER

JUDGE M I N G ORDER :	Neaves J.
DATE OF ORDER	8 April 1994

' 12 APR 1994

WHERE MADE	Canberra
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

W I B I R Y

THE COURT ORDERS THAT:

1.    The applications be dismissed.

2.  The applicant pay the respondent's costs of the

applications .

IN THE FEDERAL COURT OF AUSTRALIA)

)

AUSTRALIAN CAPITAL TERRITORY	j
) No. ACT G 55 of 1991
DISTRICT REGISTRY	1
)
GENERAL DIVISION	)

BETWEEN: RONALD DAVID SILVERSTEIN

Applicant

AND: ROBERT WILLIAM MORTON, trustee

of the Estates of Michael
Francis Buggy and Leonie

Frances Buggy, bankrupts

Respondent

GORAM: Neaves J.

DATE; 8 April 1994

REASONS FOR JUDGMENT

There are before the Court two applications by Ronald David Silverstein ("the applicant"). The first was commenced in the Supreme Court of the Australian Capital Territory by originating summons and subsequently transferred to this Court pursuant to s.5 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) . In that application the applicant seeks declarations -

(1) That the Option Agreement made between the applicant and Mlchael Francis Buggy and Leonie Frances Buggy on 28 April 1989 in respect of the property known as 3 Goode Street, Torrens in the Australian Capital Territory, being the land comprised in Certificate of Title Volume 744 folio 43 ("the property") is valid and enforceable;

(2) That the applicant was entitled to exercise the option up to and including 28 April 1992;

(3) That the applicant has exercised the option to purchase the property; and

(4) That the applicant is entitled to have the option specifically performed and carried into execution.

In that application the applicant also seeks an order that Robert William Morton, the trustee of the bankrupt estates of Michael Francis Buggy and Leonie Frances Buggy, "specifically perform and carry into execution" the option.

In the second application, which was filed in this Court during the course of the hearing, the applicant seeks declarations and orders in similar terms to those sought in the first application. The difference between the two

proceedings is that, in the first application, the applicant	asserts that the option was exercised on or about 2 May 1991
whereas, in the second application, the applicant asserts that the option was exercised on 14 February 1991 or, alternatively, on 2 May 1991 or, in the further alternative, on 2 July 1991.
The statement of claim and the affidavits of the applicant that were filed in support of the substantive applications proceeded on the footing that the option

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agreement was an isolated transaction unrelated to any other transaction involving the applicant and Mr and Mrs Buggy. Counsel for the applicant opened the matter on the same basis. It was as a result of the intervention of the Court that counsel for the applicant adduced in the applicant's case in chief evidence concerning the transactions to which reference will now be made.

Backaround to the Execution of the Option Aareement

The applicant is a solicitor. As part of his practice, he has for a number of years engaged in the activity of lending in his own name, in the capacity of trustee, moneys received from his clients.

According to the applicant's evidence, he first met

Mr Buggy in December 1987 or January 1988. As a result of

discussions between them, moneys were loaned by the applicant to one or more of the many companies which Mr and Mrs Buggy owned and controlled. An amount of $235,000.00 was advanced

Leprechaun Hotels Pty Ltd and subsequently repaid. Towards on 5 February 1988 to companies called Skylark Pty Ltd and the end of 1988, a loan of $170,000 was made to another of the companies owned and controlled by Mr and Mrs Buggy, Taverate Pty Ltd. The loan was secured by a mortgage dated 7 November 1988 (registered number Y34739) over property known as 1 Bass Street, Queanbeyan ("the Queanbeyan property"). Repayment of the moneys secured by the mortgage was guaranteed by Mr and MTs Buggy. The amount of the loan and interest was repaid on

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17 April 1989, an amount of $1,000, being the balance of the

procuration fee, remaining outstanding and secured by the
mortgage.

On 21 April 1989 Mr Buggy sought to arrange that the moneys repaid on 17 April 1989 be again advanced. The applicant agreed to advance moneys to Taverate Pty Ltd. Amounts of $70,000.00 and $100,000.00 were advanced on 28 April 1989 and 9 May 1989 respectively. The advances, together with the procuration fee of $8,000, were secured by the mortgage dated 7 November 1988 (which had not been discharged) and by a deed dated 22 April 1989 between the applicant and Taverate Pty Ltd.

Each of the advances to which reference has been made represented moneys received by the applicant from his clients.

On 28 April 1989, as a result of further discussions between the applicant and Mr Buggy, the applicant and Taverate

Pty Ltd entered into an agreement for the purchase by the

company for $100,000.00 of the property described as the Roller Skating Rink, Belgrave Street, Kempsey (Lot 1 on DP 742592) ("the Kempsey property"). That property was owned beneficially by the applicant. The contract provided for the payment of a deposit of $100.00 by 28 April 1989 and the balance on 28 April 1990 or earlier by mutual agreement. Possession was to be given on payment of the balance of the purchase price. The agreement contamed the following special conditions:

"1. The date for settlement of this contract shall be
the 28th of Aprll 1990 or earlier by mutual consent.

2.  The purchaser acknowledges that the property is zoned open-space under the Planning Ordinance of the Kempsey Shire Council.

3.  The purchaser is aware of the terms and conditions as set out in Interim Development Order Number 25 gazetted on the 19th of March 1976 and Local Environmental Plan Number 89 gazetted on the 29th of May 1987.

4.  The vendor makes no warranty as to any use of the property and purchaser acknowledges that there has been no representation or statements made by the vendor its agents or any of its representatives as to the use of the property.

5.  The purchaser acknowledges that it is aware that the property is in a flood pathway and requires the consent of Council to any use under the relevant Planning Scheme.

6.  It is an essential term of this contract that simultaneously with the exchange of this contract the Option Agreement annexed hereto together with the Contract of Sale be signed by the registered proprietors of 3 Goode Street, Torrens. In consideration for such registered proprietors

executing such Option Agreement the vendor of the Roller Skating Rink, Belgrave Street, Kempsey which is more particularly known as Lot 1 D.P. 942592

agrees to provide a second mortgage of $100,000 on the property commonly known as 1 Bass Street, Queanbeyan, for a period and on such terms and conditions as agreed upon between the parties.

7.  In the event that Taverate Pty Limited settles this property on or before the due date, namely the 28th of April 1990 and requests the vendor to provide finance for the settlement, the vendor agrees to notionally advance $100,000 by way of a second mortgage on the property known as 1 Bass Street, Queanbeyan for two years commencing from the date of settlement at an agreed rate of interest. Taverate Pty Limited agrees to grant under such circumstances, a second mortgage on the property at 1 Bass Street, Queanbeyan as security for that sum of $100,000. The sum of $100,000 referred to herein

is to be solely applied to discharge the purchaser's
obligation under this contract.

8.  Taverate Pty Limited hereby agrees to indemnify the vendor against any loss that he may incur as a result of the registered proprietors of 3 Goode Street, Torrens encumbering the property at 3 Goode Street to any other bank than Westpac during the course of the Option. That loss shall be deemed to be the difference between the sum of $145,000 and the market price on the date of the exercise of the Option.

9.  Taverate Pty Limlted further agrees not to encumber the Roller Skating Rink at Kempsey, namely Torrens Title Reference 1/742592 prior to the vendor exercising its option on the property at 3 Goode Street Torrens without the prior consent first had and obtained from the vendor."

The copy of the agreement that is in evidence does not have annexed to it the Option Agreement referred to in clause 6 of the special conditions. According to the applicant's affidavit sworn on 11 February 1991, par.17, a copy of the option referred to in that clause is annexed to his affidavit sworn on 6 December 1990 and marked with the letter "A". Reference is made to this later in these reasons.

The only evidence before the Court as to the context in which the Option Agreement came to be executed is that derived from a consideration of the documents themselves and the evidence given by the applicant. The applicant, however, was not a satisfactory witness. He had little recollection of what had occurred. This evidence was largely reconstruction from the documentary material available to him. Nelther M r Buggy nor Mrs Buggy swore affidavits and nelther gave oral evidence.

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Notwithstanding the statement in the recital to the Option Agreement that the applicant had requested the Option (as to which see later), the applicant gave evidence that it was Mr Buggy who suggested that an option be given over the property at 3 Goode Street, Torrens. He said that this suggestion was made after Mr Buggy declined to permit Taverate Pty Ltd to give the applicant a mortgage over the Kempsey property to secure the balance of the purchase price and after

Mr Buggy had declined to give a second mortgage over 3 Goode

Street, Torrens as further security for the payment by Taverate Pty Ltd of the purchase price of the Kempsey property. The applicant said he recalled a conversation with

Mr Buggy as follows:

"He [Mr Buggy] said he didn't want it [a second mortgage]

because it could affect any further borrowings that he wanted on the security and he felt that his bank manager could have been a bit sort of upset about it. He felt that the bank would have got rather nervous having a further encumbrance over hls house and so he said he didn't want to do it."

At the time of that conversation and at the date that the	Option Agreement bears, 28 April 1989, Westpac Banking
Corporation had a first mortgage over the property at 3 Goode Street, Torrens. The amount then secured by that mortgage does not appear from the evidence.
Asked how the purchase price of $165,000 set out in the Option Agreement was determined, the applicant sald:

"Well, I think, how it was done is that - I'm not quite certain if that was the amount of moneys outstanding. As I said before, I'm not quite certain if there was $145,000 or there was $165,000 outstanding to Westpac. It was really determined as such that, if I exercised it, it would have left no money owing to M r Buggy. It was done there as part and parcel of a security arrangement."

Asked to clarify his evidence, the applicant said in an answer which, as transcribed, is not entirely clear:

"I think that what he told me was that there was either 165 owing. I will just give you my thoughts out aloud and then I will come back to what - I believe what was said. I believe that there was a discussion where either a figure of $145,000 had been mentioned as the amount outstanding to Westpac or 165 outstanding to Westpac. I'm not quite certain and I can't say for certain which one it was. The purpose of the option was basically if I had to exercise it was there to ensure was an incentive, which I think is probably the correct way of explaining it, is an incentive to him to make sure that I didn't, that he would repay to me in due course the $100,000 should I be obliged to leave it in as a second mortgagee on the Taverate property. If I did not use the option what was on my mind was to have had a second registered collateral security mortgage for $100,000 which would have been interlinked with the Taverate mortgage. You have to bear in mind that I had lost all equity in the roller skating rink. I couldn't go back and want that as well. He wasn't agreeable to that."

at 3 Goode Street, Torrens was obtained by the applicant prior	It is clear on the evidence that no valuation of the property
to the purchase price of $165,000 being agreed. There is no evidence on which the Court could rely as to the value of that property, either at the time the Option Agreement was entered into or at any time between that date and the present.

Later, the applicant gave the following evidence:

"At the time that I took the option, there was no thought in my mind that I would ever have to exercise the option. It was my belief that the Taverate property would have been sold. I did not expect, I thought at that stage there was sufficient enough equity in the other, in the property at Bass Street, which would not cause me primarily to exercise the option. It was only when I suppose, with falling property values and other matters which I will come to later, that caused me to exercise the option. That certainly, at the time that the option was granted to me, it was not, it was certainly part of a proper commercial arrangement that there was nothing special insofar as buying a property or taking an option on the property, let's say, at 50 per cent value. The option, at that stage, I would say that the figures were probably, if I had exercised the option, say, on 28 April 1989, at the price which was the option price, I believe that I would have been buying the property at about 10 per cent under market value. So, in terms of a commercial advantage, yes, it gave me - there was some commercial benefit. Nothing major. It was never my intention at that time to regard that as the prime security. It was there, I suppose, as an emotive factor to ensure that he would pay me back on the other loans, without having to sacrifice the family."

The O~tion Aareement

There is difficulty in identifying what documents
comprise the Option Agreement. The difficulty arises because

the affidavits of the applicant that are before the Court,

proceedings, give differing versions of what documents being affidavits sworn by him in this and other ' related	comprise that agreement.
The earliest of those affidavits was sworn on 6 December 1990 (Exhibit 1). According to that affidavit, the Option Agreement comprised the material annexed to the affidavit and marked with the letter "A". That material included a document that bears the signatures of the applicant and Mr and Mrs Buggy and reads as follows:

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"OPTION AGREEMENT

This Option Agreement is dated the 28th of April 1989 between Ronald David Silverstein of 36 Yarravale Road Kew, hereinafter called 'the Optionholder' and Michael Francis Buggy and Leonie Frances Buggy, hereinafter called 'the Grantee'.

WHEREAS the Optionholder has requested the Grantee to grant an option to purchase the property commonly known as Volume 644 Folio 43 and generally known as 3 Goode Street, Torrens and

WHEREAS the Grantee has agreed to enter into such an Option upon the terms and conditions set out in the contract of sale annexed hereto for a consideration of $1.00 the Grantee hereby gives to the Optionholder any time until the 28th of April 1992 upon the following terms and conditions:

1.    the purchase price of the property shall be $165,000

2.    the purchase price shall be payable by a deposit of ten percent and the balance in ninety (90) days

3.    the Grantee agrees not to encumber the property to any other person or company other than to Westpac Banking Corporation and in default the purchase price shall be reduced to $145,000.

4.   This option is granted for valuable consideration, receipt of which is acknowledged and shall bind all successors of title of the Grantee.

5.   This option shall create an equitable interest in the land and entitle the Optionholder to lodge a

caveat on the said Certificate of Title'' .

that it does not in its operative part state what is given by	It may be noted that the document is obviously deficient in
the Grantee to the Optionholder. There are other defects. For example, Mr and Mrs Buggy are referred to as "the Grantee" rather than "the Grantor" and the reference to "Volume 644 Folio 43" is incorrect.

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Also forming part of the mater~al annexed to the affidavit and marked with the letter "A" was a photocopy of a printed form headed "Agreement for Sale (Crown Leasehold)" containing typewritten insert~ons. The printed form provides:

"The Seller agrees to sell and the Buyer agrees to buy the Crown Lease together with the Goods (if any) for the Total Purchase Price set out in Schedule Item 8(3) apportioned as set out in Schedule Item 8 on the conditions of this agreement."

The printed form bears the endorsement "Copyright The Law Society of the Australian Capital Territory 1981". The typewritten insertions on the Schedule show the Seller as Michael Francis Buggy and Leonie Frances Buggy, the Buyer as Ronald David Silverstein, the Crown Lease as the residue unexpired of the Crown Lease in Register Book Volume 744 Folio 43, the purchase price as $165,000 and the goods as nil. There is no requirement for the payment of a deposit, the total purchase price of $165,000 being shown as payable on completion. There is no requirement that completian take

Agreement. The remainder of the document consists of printed place within the period of 90 days referred to in the Option Conditions of Sale. The agreement is signed by the parties and each page bears the signature or the initlals of the applicant and Mr and Mrs Buggy. Clause 3(4) of the Conditions of Sale provides that the t~tle will be transferred "free from all mortgages, encumbrances, leases, liens, charges, notices, orders and other interests except as d~sclosed herein". The Schedule, however, makes no reference to any mortgage or other

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encumbrance on the property, the relevant items in the
Schedule being left blank.

There is provision in the Schedule for identifying, by number, any special conditions attached. There is no typewritten insertion in respect of that provision. There was, however, a further document within the material annexed to the affidavit and marked with the letter "A". That document, which bears the signature or initials of the parties, reads:

"SPECIAL CONDITIONS

1.  The date for settlement of this contract shall be the 15th of April 1990 or earlier by mutual consent.

2.  The purchaser acknowledges that the property is zoned open-space under the Planning Ordinance of the Xempsey Shire Council.

3.  The purchaser is aware of the terms and conditions as set out in Interim Development Order Number 25 gazetted on the 19th of March 1976 and Local Environmental Plan Number 89 gazetted on the 29th of May 1987

4.  The vendor makes no warranty as to any use of the property and the purchaser acknowledges that there has been no representation or statements made by the vendor its agents or any of its representatives as to the use of the property.

5    The purchaser acknowledges that it is aware that the property is in a flood pathway and requires the consent of Council to any use under the relevant Planning Scheme."

It may be noted that this document is, except as to the date in clause 1, identical with the first five clauses in the document headed "Special Conditions" forming part of the

U

agreement between the applicant and Taverate Pty Ltd for the sale of the Kempsey property to which reference has already been made.

The applicant also swore an affidavit on 4 April 1991 (Exhibit 5). That affidavit identified the material annexed and marked with the letter "A" as "the Right to Purchase Agreement" between the applicant and Mr and Mrs Buggy. The material so identified included a photocopy in the same terms as the document headed "Option Agreement" the text of which is set out earlier in these reasons and a copy of the printed document headed "Agreement for Sale (Crown Leasehold)" in the same terms as that to which reference has already been made. It also included a further document that reads:

"SPECIAL CONDITIONS

The Optionholder acknowledges that in the event that this Option is exercised that he will acknowledge that the Vendors will have a right to remain in Flat 1 for a period of ten years from the date the Option is exercised subject to the Vendors paying a rental equal to a sum of

monthly instalments of $2,200.	$165,000 at a rate of 16 percent per annum payable by
Subject to and conditional upon there being no default of any payments of $2,200 being due and payable on the 1st of each month commencing from the date the Option is exercised, the Optionholder will permit Flat 2 to be leased by the Vendor or its assignees for a peppercorn rent for a period of ten years.
In the event of a default in the payment of the rental on Unit 1 or in the event that the Vendor's vacate Unit 1 at any time prior to the ten year period referred to therein the Optionholder shall have the right to terminate the tenancy on Flat 2."

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Although the copy of that document that is in evidence indicates that the document of whlch it is a copy bears some initials, those initials have not been identified nor has it been established in what circumstances the initials were placed on the document.

In a further affidavit sworn on 9 May 1991 the applicant deposed that the document annexed to the affidavit and marked with the letter "B" was a true copy of the Option Agreement. Annexure "B" to that affidavit consisted only of a copy of the document headed "Option Agreement". The document described in the Option Agreement as "the contract of sale annexed hereto" did not, in fact, form part of Annexure "B" to the affidavit.

Settlement of the KemDSev ProDerty

It appears that completion of the sale of the Kempsey property took place on 14 April 1990, that is to say, 14 days before the date for settlement nominated in the sale	agreement, namely 28 April 1990. The circumstances in which	that came about do not appear from the material before the
Court. According to the evidence, the applicant notionally advanced the sum of $100,000 to Taverate Pty Ltd to enable that company to complete the purchase of the property and Taverate Pty Ltd executed a second mortgage dated 14 April 1990 in favour of the applicant over the Queanbeyan property. The terms of the mortgage provlded that the sum of $100,000 secured by the mortgage was repayable on 14 April 1991.

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Interest at the rate of 26 per centum per annum, reducible to 24 per centum per annum for due payment, was payable monthly on the 14th day of each month. The mortgage also contained the following clauses:

"Fourthly: The Mortgagor acknowledges that the amount outstanding under the prior Mortgage at this date is $178,000.00

Fifthly: This Mortgage hereby incorporates all the terms and conditions of the Deed dated 22nd April, 1989 between Ronald David Silverstein and Taverate Pty. Ltd. and secures all monies referred to in this Deed."

Michael Francis Buggy became a bankrupt on 29 May 1990 upon the endorsement by the Deputy Registrar in Bankruptcy for the Bankruptcy District of the Australian Capital Territory of acceptance of a debtor's petition presented by Mr Buggy against himself on that day (Bankruptcy

Act 1966 (Cth, s.55(4A)). Leonie Frances Buggy became a

bankrupt on the following day by virtue of the presentation by

Deputy Registrar followed by endorsement on the petition of

her of a petition against herself and its acceptance by the

such acceptance. The petitions were presented following the passing, at meetings of creditors held on 25 May 1990, of resolutions requiring the presentation by Mr and Mrs Buggy of debtors' petitions within 7 days of the passing of the resolutions. By order made on 12 September 1990, the bankrupt estates were consolidated pursuant to s.53 of the Bankruptcy Act and it was declared that the date for the purposes of the application of the provisions of Division 3 of Part IV of that

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Act be 29 May 1990 and that that date be the date of the bankruptcy in respect of each of the estates.

Exercise of the O~tion

AS has already been ment~oned, the applicant contends that the option was exercised on 14 February 1991 or, alternatively, on 2 May 1991 or, in the further alternative, on 2 July 1991.

To support the contention that the option was exercised on 14 February 1991, the applicant relies on a letter bearing that date sent by R.D. Silverstein and Associates to Mr and Mrs Buggy reading as follows:

"In accordance with the terms and conditions of the Contract of Sale dated the 28th of April 1989 between Ronald David Silverstein and Taverate Pty Limited and in accordance with Special Condition 6. of that Contract, together with the terms and conditions contained in the Contract of Sale and Option Agreement that was annexed therein, we hereby glve notice that we w ~ l l now exercise our Option.

mortgaged 3 Goode Street, Torrens to Canoona Pty Limited	We now note that in breach of the agreements you have	and have allowed the mortgage to exceed the sum of $145,000.
Subject to that mortgage remaining valid and enforceable we have no choice but to purchase the property at 3 Goode Street, Torrens for $165,000 and seek damages from Taverate Pty Limited for $20,000. We also reserve our rights to apply to the Court to set aside the mortgage to Canoona Pty Limited.
We have this date instructed our Bank to send by telegraphic transfer the sum of $16,500 to the trust account of our solicitors for the purposes of paying a deposit on the property at 3 Goode Street. We note that your Estates have now vested in the Trustee in Bankruptcy.
We have not carried out a title search, however we presume that Mr. Morton has become the registered proprietor of the fee simple.
In respect of the question of possession, the contract does not provide for the purchaser to take possession on the signing of the contract and the payment of the deposit, however we have no objection to you remaining in the property and in fact, we would be concerned to have the property vacant as this could attract vandals and/or squatters. Unfortunately we have already had a bad experience in Melbourne where this occurred.
We will not permit Mr. Morton to lease the property between today's date and the date of settlement."

In support of the contention that the option was exercised on 2 May 1991, the applicant gave evidence that on that date he instructed his solicitors, Messrs Wood Fussell, to deliver to Mr Morton the original and counterpart of an agreement for sale of the property and a cheque in the sum of $16,500 payable to Mr Morton as trustee of the estates of Mr and Mrs Buggy. Annexed to the applicant's affidavit sworn on 9 May 1991 and marked with the letter "D" is a copy of a letter dated 2 May 1991 addressed by Wood Fussell to Messrs

Morton Parker reading as follows:

Option holder referred to in an Option Agreement made on

"We advise that we act for Ronald David Silverstein, the

28th April 1989 in which Michael Francis Buggy and Leonle Frances Buggy, referred to in the Agreement as "the Grantee", granted to our client an option to purchase the property in Register Book Volume 744 Folio 43 known as 3 Goode Street, Torrens.

You are the trustee of the estate of Michael Francis Buggy and Leonie Frances Buggy. Our client wishes to exercise his rights under the Option Agreement. On behalf of our client, we tender herewith the following documents:-

1.	Original and counterpart Agreement for Sale, in the same form as the Agreement annexed to the Option Agreement, signed by Mr Silversteln, and
2.	A cheque in the sum of $16,500.00 payable to you as trustee of the estate of Michael Francis Buggy and Leonie Frances Buggy.

The delivery and tender of the original and counterpart Agreement for Sale together with the cheque constitutes an exercise by our client of his rights under the Option Agreement.

We anticipate that you and not Mr and Mrs Buggy, will execute the Contract. We have no objection to the counterpart Contract being altered accordingly.

Notwithstanding the fact that the Agreement for Sale provides for no deposit to be payable, Mr Silverstein is, in accordance with the provisions of Clause 2 of the Option Agreement, prepared to pay a 10 percent deposit, which deposit is constituted by the cheque tendered herewith.

Finally, we invite you to appoint a time for formal exchange of Agreements. We suggest 3.30pm on 3rd May 1991 at your office. We trust that that time and date are satisfactory and look forward to an exchange at that

time .

We trust the above meets with your approval and look forward to hearing from you."

The agreement for sale (Exhibit A) referred to in the letter	-
printed form headed "Agreement for Sale (Crown Leasehold)" to	as having been forwarded with the letter consisted only of a
which no special conditions were attached. That agreement for sale differs in some respects from the printed forms attached to the applicant's affidavits to which reference has been made. The document forwarded with the letter dated 2 May 1991 bears the endorsement "Copyright The Law Society of the Australian Capital Territory 1989".
The contention that the option was exercised on 2 July 1991 is based on a letter of that date delivered by the solicitors for the applicant to the solicitors for Mr Morton in the following terms:

"We refer to our previous correspondence in relation to this matter and in particular to a letter from Messrs. Bird Cameron dated 7th May, 1991 and enclose further Agreement for Sale in the same form as the Agreement annexed to the Option Agreement which we request that your client Mr. Morton, as Trustee of the bankrupt estates of Michael Francis Buggy and Leonle Frances Buggy, sign in readiness for exchange.

We submit this further Agreement in a final attempt to avoid the additional expense of pursuing the litigation currently on foot and invite you to appoint a time for formal exchange of Agreements. We suggest 3.30p.m. on Friday, 5th July, 1991 at your office.

If we do not hear from you that that time and date is suitable for exchange of Agreements, our client will regard your client's inactlon as a further refusal to enter into the Agreement and pursue the current litigation."

Enclosed with the letter was a printed form headed "Agreement for Sale (Crown Leasehold)" in the same terms as that referred

attached to the printed form a typewritten document headed	to in the letter dated 2 May 1991. There was, however,
"Special Conditions" in the same terms as that forming part of Annexure "A" to the applicant's affidavit sworn on 4 April
1991.
There is evidence before the Court of default by Taverate Pty Ltd in complying with the terms of the first mortgage dated 7 November 1988. According to the applicant, default in payment of interest under that mortgage occurred in
August 1990. However, the evidence as to default by Taverate Pty Ltd in complying with the terms of the second mortgage dated 14 April 1990 is unsatisfactory. It consists solely of a statement by the applicant, unsupported by any other material, that repayment of the principal sum was not made on 14 April 1991 and that that sum remains outstanding. The evidence is not clear whether there was default in August 1990 in the payment of the interest due under that mortgage.
On 5 December 1990, the applicant as mortgagee under the mortgage dated 7 November 1988 gave notice to the occupier of the Queanbeyan property pursuant to s.60 of the Real Property Act, 1900 (NSW) requiring the occupier to pay to him as such mortgagee all rent and other moneys payable in respect of the occupation of the property. On 7 December 1990, the applicant gave notice to Taverate Pty Ltd pursuant to s.57(2)(b) of the Real Property Act, 1900 (NSW) that, unless an amount of $13,216.04 being outstanding arrears of interest
month after service of the notice, the applicant as mortgagee under the mortgage dated 7 November 1988 was paid within one proposed to exercise the power of sale under the mortgage. I
understand the applicant's evidence to be that, sometime after 14 April 1991, he had a discussion with Mr Buggy in which Mr Buggy said he was unable to pay the moneys secured by the second mortgage dated 14 April 1990 over the Queanbeyan property. According to the applicant, he told Mr Buggy that, if he could sell the property in exercise of the power of sale conferred by the mortgage dated 7 November 1988, any surplus

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would be used to reduce the amount outstanding under the second mortgage. The applicant has not caused notices similar to those referred to above to be served in relatlon to the second mortgage.

On the applicant's evidence, only desultory steps had been taken prior to the hearlng to sell the Queanbeyan property and those steps had not resulted in a sale.

Findinas as to the Option Aareement

A close examination of the documents comprising the various versions of the Option Agreement deposed to by the applicant strongly suggests, and I so find, that the Option Agreement as executed by the parties on 28 April 1989 comprised the documents annexed to the applicant's affidavit sworn on 6 December 1990 and marked with the letter "A". Those documents have been identlfled, and the text of them, so far as relevant, has been set out, earlier in these reasons. They comprise the document headed "Option Agreement", the	printed form with typewritten insertions headed "Agreement for	Sale (Crown Leasehold)" and the document headed "Special
Conditions" that contains 5 clauses and references to the Kempsey Shire Council.
It is, however, obvlous from the text of the document headed "Special Conditions" that that document has no relevance to a sale of the property at 3 Goode Street, Torrens and does not reflect any part of the agreement between the

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applicant and Mr and Mrs Buggy. It is equally obvious that it would not reflect the true agreement between the parties to treat that document as surplusage and, thus, in the event that the option was exercised, the terms of the proposed contract as not including any special conditions. To adopt that view of the matter would be to enter the realm of unreality. Further, as the documents were prepared by the applicant and as, so far as appears, Mr and Mrs Buggy did not have the benefit of legal assistance, it would be unconscionable to allow the applicant to treat the option as entitling him to purchase the property on the basls that the proposed contract did not include any special conditions. Whether the Court can, in these proceedings and in the absence of any evidence from Mr or Mrs Buggy, treat the proposed contract of sale as including the special conditions forming part of Annexure "A" to the applicant's affidavit sworn on 4 April 1991 is another question and is one which, in the event, I do not find it necessary to answer.

As has already been observed, the Option Agreement cannot be viewed in isolation; it must be considered in the context of the totality of the transaction concerning the sale of the Kempsey property. The surrounding circumstances against which the Option Agreement is to be considered include the terms of the agreement between the applicant and Taverate Pty Ltd dated 28 April 1989. The language in which that agreement is cast gives rise to its own difficulties.

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That agreement provided for the payment of a deposit of $100.00 on 28 April 1989 and the balance of the purchase price on settlement which was to take place on 28 April 1990 or an earlier date if mutually agreed. The granting to the applicant by Mr and Mrs Buggy of an option to purchase the property at 3 Goode Street, Torrens was provided for in clause 6 of the special conditions forming part of the agreement. That clause provided that it was an essential term of the contract that, simultaneously with the exchange of the contract, the Option Agreement and the contract of sale of the property at 3 Goode Street, Torrens be signed by Mr and Mrs Buggy. The clause further provided that, in consideration of the execution of the Option Agreement, the vendor, that is to say the applicant, agreed to provide "a second mortgage" of $100,000 on the Queanbeyan property "for a period and on such terms and conditions as agreed upon between the parties". There is no evidence that the period or the terms and conditions were agreed between the parties at that time. In any event, it is clear that the applicant could not have given

was owned by Taverate Pty Ltd subject to a first mortgage.	a second mortgage over the Queanbeyan property - that property
Counsel for the applicant submitted that the clause should be read as requiring that, upon the execution of the Option Agreement, the applicant would advance $100,000 to Taverate Pty Ltd to be secured by a second mortgage on the Queanbeyan property. It is difficult to accept counsel's submission as to do so would involve some inconsistency with

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the obligation of the applicant under clause 7 of the special conditions. Under that clause, the vendor agreed to provide finance for the settlement by notionally advancing $100,000 "by way of a second mortgage" on the Queanbeyan property. That obligation, however, was to arise only in the event that Taverate Pty Ltd "settles ... on or before the due date", namely 28 April 1990, and "requests the vendor to provide finance for the settlement". Clause 7 did not provide for the mortgage to be for a period to be agregd: it provided that the second mortgage was to be "for two years commencing from the date of settlement" and to be "at an agreed rate of interest". There is no evidence that the rate of interest was agreed at that time. The clause went on to provide for Taverate Pty Ltd to grant a second mortgage over the Queanbeyan property as security for the sum of $100,000.

In order to give efficacy to the agreement for the

sale of the Kempsey property it is necessary to construe

will, as far as possible, reconcile the two clauses. So read, clauses 6 and 7 of the special conditions in such a way as

the agreement provided that, in the event that Taverate Pty

Ltd proposed that settlement take place prior to 28 April 1990 and made a request to the applicant to provide finance for the settlement and in the event that Mr and Mrs Buggy had signed the Option Agreement and the proposed contract for the sale of the property at 3 Goode Street, Torrens, the applicant would transfer title to the Kempsey property to Taverate Pty Ltd in return for a second mortgage over the Queanbeyan property

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securing payment of the purchase price of $100,000, that second mortgage to be for two years from the date of settlement, to provide for the payment of interest at a rate to be agreed and to contain such other terms and conditions as might be agreed between the applicant and Taverate Pty Ltd.

What was done, however, was not in accordance with clauses 6 and 7 of the special conditions as so read in that the second mortgage, which was taken on 14 April 1990, required repayment of the principal sum of $100,000 at the end of one year, not two, from the date of settlement. A difficulty thus arises for the applicant when he seeks the assistance of the Court to enable him to take advantage of an option given in contemplated circumstances less onerous than those which were negotiated between the applicant and Taverate Pty Ltd approximately one year after the Option Agreement was signed.

The Option Agreement, which was drafted- by the art. That description can, indeed, hardly be applied to any

applicant, cannot be described as a model of the draftsman's

of the documents relevant to the issues that now arise for determination. Reference has already been made to the circumstance that the operative part of the document does not state what is being granted. Further, the agreement for sale annexed to the Option Agreement is inconsistent with the Option Agreement in that it does not provide for a deposit of 10 per cent or for the balance to be paid in 90 days.

2.6

Further, the agreement does not make provision for the reduction of the purchase price as envisaged by clause 3 of the Option Agreement. Notwithstanding that the Option Agreement was to operate solely as additional security for the payment by Taverate Pty Ltd of the purchase price of the Kempsey property, the Option Agreement does not express in what circumstances the parties contemplated that it might be exercised. There are at least two possibilities. One possibility 1s that the parties intended that it might be exercised at any time prior to 28 April 1992 provided Taverate Pty Ltd had, before the date upon which the option was exercised, defaulted in payment of the moneys secured by the second mortgage. The other, which seems more attuned to the evidence given by the applicant, is that the option was not to be exercised unless any loss suffered by reason of Taverate Pty Ltd defaulting in payment of moneys secured by the second mortgage had been crystallised as a result of the applicant selling the property under the powers of sale conferred by that security and the first mortgage. Indeed, the applicant's	evidence supports the view that the Option Agreement was not	drawn with a view to providing machinery for the enforcement
of any rights against Mr and Mrs Buggy but solely for the purpose of exerting pressure on Mr and Mrs Buggy to ensure that Taverate Pty Ltd fulfilled its obligations under the agreement for the purchase of the Kempsey property.
A further problem with the Option Agreement is that no satisfactory explanation has been given as to how the

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purchase price of $165,000 was fixed. The agreement for the sale of the Torrens property provided for an unencumbered title to be transferred to the applicant upon the exercise of the option yet there was a first mortgage on the property in favour of Westpac Banklng Corporation. To provide securlty to the applicant for the performance by Taverate Pty Ltd of its obligations in relation to the purchase of the Kempsey property, it would be necessary that the market value of the Torrens property substantially exceed the purchase price of $165,000. The position becomes further confused if, as the applicant contended, the special conditions giving M r and Mrs Buggy the right to remain in the property subject to the payment of rent, and to sub-lease part of the property at a peppercorn rent, for a period of ten years from the date of the exercise of the option are the special conditions forming part of the agreement for the sale of the Torrens property.

conclusion

By reason of the matters adverted to above,-I am not satisfied that the Option Agreement dated 28 April 1989 in	respect of the property at 3 Goode Street, Torrens is valld
and enforceable. Further, even if I were so satisfied and I were further satisfied that the option had been validly exercised, as to which I express no opinion, the matters to which I have referred are such that the Court would not, in the exercise of its discretion, assist the applicant by making an order for specific performance as against the respondent.

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In the result, the applications before the Court are dismissed. The applicant must pay the respondent's costs of the applications.

I certify that thls and the preceding 27 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justlce Neaves.

-ULy

Associate

Dated: 8 April 1994

Counsel for the applicant : M r J. Stevenson

Solicitors for the applicant : Wood Fussell

Counsel for the respondent : Mr J.K. Chippindall

Solicitors for the respondent : Higgins Solicltors

Dates of hearing : 24 and 25 September 1992

Written submissions : 30 September 1992,

5 March 1993