BP7 Pty Ltd v Gavancorp Pty Ltd

Introduction

1. These proceedings were commenced by Summons filed on 17 April 2020. The plaintiff, BP7 Pty Ltd, sought declaratory relief in relation to 14 contracts for the sale of land entered into with one or more of the defendants. In each case the relevant land consisted of a lot in either Strata Plan 3225 or Strata Plan 41002. They are strata schemes in respect of certain apartment blocks in Gerrale Street, Cronulla. The defendants are the owners of the various lots.
2. Each of the contracts arose as a result of the exercise, by one or more of the defendants, of put options that had been granted to them by the plaintiff.
3. The plaintiff purported to rescind each of the contracts on 11 March 2020 pursuant to s 66U of the Conveyancing Act 1919 (NSW) ("the Act"). Section 66U provides that in certain circumstances a purchaser under a contract for the sale of residential property has a right to rescind during the "cooling off period" that is provided for in ss 66S and 66T of the Act.
4. The plaintiff sought declarations to the effect that the contracts were so rescinded, and that as a consequence the defendants were in each case obliged to refund certain monies in the nature of call option fees that had been paid by the plaintiff, less 0.25% of the purchase price which is forfeited as provided for in s 66V of the Act. The defendants denied that the plaintiffs had validly exercised rights of rescission under s 66U and denied that the plaintiff was entitled to the claimed refunds. The defendants filed a Cross-Claim against the plaintiff and also against a firm of solicitors which had been retained by the defendants in relation to the transaction which gave rise to the contracts for sale. As against the plaintiff, the Cross-Claimants sought orders for specific performance of the contracts or alternatively orders that they were entitled to the call option fees paid by the plaintiff. As against the solicitors, the cross-claimants sought common law damages for alleged breaches of retainer or negligence, and damages under the Australian Consumer Law in respect of alleged misleading or deceptive conduct.
5. On 2 October 2020 the Court made orders pursuant to Uniform Civil Procedure Rules 2005 r 28.2 that two questions be determined separately and in advance of all other questions in the proceedings. The questions were framed as: 1. Has the Plaintiff validly rescinded the Sale Contracts? 2. Is the Plaintiff entitled to a refund of the amounts paid as the Call Option Fee nominated in Item 1 of each Option Deed as the deposit credited under each respective Sale Contract (less 0.25% of the purchase price nominated on the front page of that Sale Contract)? The hearing of the separate questions was set down before Rein J on 10 November 2020.
6. Shortly before the hearing, the matter settled as between the plaintiff and the defendants, so the hearing did not proceed.
7. On 9 November 2020 the plaintiff filed a Notice of Discontinuance. An Amended Cross-Claim, confined to the claims against the solicitors, was filed on 2 December 2020. A Defence to that pleading was filed by the solicitors on 8 December 2020. It is part of the cross-claimants' case, denied by the solicitors, that the plaintiff validly rescinded each of the contracts for sale pursuant to s 66U of the Act, and in each case was entitled pursuant to s 66V of the Act to recover the call option fees paid less a forfeited amount of 0.25% of the purchase price.
8. On 11 December 2020 Ward CJ in Equity, being of the opinion that answering the separate questions remained of utility, listed the separate questions for hearing before me on 11 March 2021.
9. The cross-claimants contend that both of the questions should be answered in the affirmative. The solicitors contend that both of the questions should be answered in the negative.

Salient facts

1. On 4 September 2018 Deeds of Put and Call Option were entered into between the plaintiff and the relevant owner or owners of a lot in either Strata Plan 3225 or Strata Plan 41002. There are fourteen such deeds. They are relevantly in the same terms save as to the identity of the parties, the property concerned, and the amounts to be paid. In each case the owner or owners of the property entered into the deed as the Grantor, and the plaintiff entered into the deed as the Grantee. The principal provisions of one of the deeds are set out in the paragraphs that follow.
2. The recitals are in the following terms: A. The Grantor is the registered proprietor of the Property. B. The Grantor has agreed to grant to the Grantee the Call Option and the Grantee has agreed to accept the Call Option to purchase the Property on the terms and conditions contained in this Deed. C. The Grantee has agreed to grant to the Grantor and the Grantor has agreed to accept the Put Option to require the Grantee to purchase the Property on the terms and conditions contained in this Deed. D. The terms and conditions on which the Call Option and the Put Option are to be granted are set out in this Deed.
3. The call option is dealt with in cl 2 which relevantly provides: 2.1 Grant by the Grantor In consideration of the payment of the Call Option Fee by the Grantee to the Grantor pursuant to Clause 2.3 of this Deed, the Grantor grants to the Grantee a Call Option for the Grantee or its Nominee to purchase the Property for the Purchase Price and on the terms of the Contract. 2.2 Irrevocable offer The Call Option constitutes an irrevocable offer by the Grantor to enter into the [sic] binding Contract for the sale of the Property to the Grantee which, if accepted, must be accepted strictly in accordance with the provisions of this document or otherwise the Call Option will expire. 2.3 Payment of Call Option Fee The Call Option Fee must be paid by the Grantee to the Grantor in tranches as below: (a) As to the sum of $75,449.15 on or before the date of this Deed (the receipt of which is hereby acknowledged), which shall be immediately released to the Grantor; and (b) As to the sum of $75,449.15 on or before six (6) months after the date of this Deed, which shall be held in the trust account of the Grantor's Agent Trust Account pending settlement of the Contract… 2.4 Vesting of Call Option Fee (a) The Call Option Fee, upon being paid to the Grantor in accordance with Clause 2.3, shall not be refundable, except as provided for in Clauses 4.3 and 12.2, 14 and 16. (b) If however, either the Call Option or the Put Option is exercised, then the Call Option Fee will be credited as the Deposit. … 2.7 Parties to be bound On the exercise of the Call Option, a Contract for the sale of the Property will be deemed to have been entered into between the Grantor and the Grantee on the terms and conditions set out in the Contract in the form served under Clause 2.5(c) irrespective of whether or not the Contract is executed by the Grantor within the time required by Clause 2.6 or at all.
4. The Call Option Fee is defined as an amount which equals 10% of the Purchase Price of the relevant property. The Contract is defined as the contract for sale of land formed on an exercise of either the Call Option or the Put Option in the form of the contract annexed to the deed as Annexure A. The annexed contract employs the 2018 Law Society/Real Estate Institute standard form, supplemented by a number of Additional Conditions. The annexed contract provided for a deposit of 10% of the purchase price. I note that the annexed contract contains the statement, required by s 66X of the Act, relating to the cooling-off period.
5. The Call Option Period commenced on the 43rd day after the date of the deed and ended at 5:00pm on the Call Option Expiry Date (which was defined as the date being 18 months from the date of the deed).
6. There is no dispute that on 4 September 2018 the plaintiff paid 50% of the Call Option Fee as required by each deed. Pursuant to the terms of the deed, those amounts, which total $1,050,000, were immediately released to the owners. The remaining 50% of the Call Option Fee was paid by the plaintiff in accordance with the deed. That amount of $1,050,000 was placed into the trust account of the agent for the owners.
7. There is no dispute that none of the call options were exercised within the Call Option Period.
8. The put option is dealt with in cl 3 of the deeds which relevantly provides: 3.1 Grant by the Grantee In consideration of the payment by the Grantor to the Grantee of the Put Option Fee, the Grantee grants to the Grantor a Put Option for the Put Option Period for the Grantor to require the Grantee, prior to the Put Option Expiry Date, to purchase the Property for the Purchase Price and on the terms of the Contract. 3.2 Irrevocable offer The parties agree and acknowledge that once granted, the Put Option constitutes an irrevocable offer by the Grantee to enter into a binding contract to purchase the Property from the Grantor which, if accepted, must be accepted strictly in accordance with the provisions of this document, otherwise the Put Option will lapse. 3.3 Payment of the Put Option Fee The Put Option Fee must be paid by the Grantor to the Grantee on the date of the commencement of the Put Option Period. The Put Option Fee is not refundable in any event. … 3.6 Parties to be bound On the exercise of the Put Option, a Contract for the sale and purchase of the Property will be deemed to have been entered into between the Grantor and the Grantee on the terms and conditions set out in the Contract in the form served under Clause 3.4(b) irrespective of whether or not the Contract is executed by the Grantee within the time required by Clause 3.5 or at all. … 3.8 Prior exercise of Call Option The Put Option cannot be exercised if the Call Option has been exercised.
9. The Put Option Fee is defined as $10.00. The Put Option Period is defined as the period beginning on the next Business Day after the Call Option Expiry Date and ending at 5:00pm on the Put Option Expiry Date. The Put Option Expiry Date is defined as the date being 10 Business Days after the Call Option Expiry Date.
10. There is no dispute that on 5 March 2020 each of the put options was exercised, and that this occurred within the Put Option Period. By cl 3.6 of each deed, a contract for sale was thus deemed to have been entered into between the Grantor (as vendor) and the Grantee (as purchaser) on the terms set out in the contract annexed to the deed. It is not in dispute that no s 66W certificate was provided by the purchaser at or before the time the contract was made. Accordingly, s 66T(a) did not operate so as to negate the cooling-off period.
11. In these circumstances, cl 4.1 operated. It is in the following terms: 4.1 Parties to be bound If an Option is validly exercised: (a) The Grantor and Grantee or Nominee will be deemed and regarded to have entered into the Contract as vendor and purchaser respectively; (b) On and from the Option Notice Service Date, the Grantee or Nominee and the Grantor, if any, are bound by and must observe and comply with the Contract as if it had been completed, executed and exchanged even if the Contract is not executed or exchanged; (c) The date of the Contract is the Option Notice Service Date; (d) The Call Option Fee which has been paid to the Grantor in accordance with this Deed shall be credited in accordance with Clause 2.4 of this Deed; and (e) On the exercise of the Option, a contract for the sale and purchase of the Property will be deemed to have been entered into between the Grantor and Grantee or Nominee as vendor and purchaser respectively on the terms and conditions set out in the Contract. Option is defined to mean the Call Option or the Put Option (as the case may be).
12. Clause 4.2 provides: 4.2 No exercise of Option If an Option is not exercised: (a) The Grantor retains the Call Option Fee, subject to clauses 4.2, 12.2, 14 and 16; (b) The Grantee retains the Put Option Fee; and (c) This Deed terminates on the date being the later of the last day of the Put Option Period and the last day of the Call Option Period.
13. On 11 March 2020 the plaintiff sent Notices of Rescission to the owners in respect of each of the contracts in the following terms: Builtcom Properties 7 Pty Ltd (ACN 613 815 713) hereby rescinds the Contract for the sale and purchase of land between the above parties bearing the date 5 March 2020 pursuant to section 66U of the Conveyancing Act 1919.
14. On 16 March 2020 the plaintiff demanded, pursuant to clause 19.2.1 of the contracts, and s 66V(5) of the Act, that the Call Option Fees it had paid be refunded to it, less 0.25% of the purchase price of each contract for sale. In circumstances where the monies were not refunded as demanded, the plaintiff commenced these proceedings on 17 April 2020.

Relevant legislation

1. The issues raised on the separate questions concern the meaning and operation of various provisions found in Divisions 8 and 9 of Part 4 of the Act. These divisions were inserted into Part 4 of the Act (in substitution for the existing Division 8) by the Conveyancing (Sale of Land) Amendment Act 1990 (NSW). It is of course necessary to have regard to all of Divisions 8 and 9, and indeed to the statute as a whole, but the following provisions in particular should be noted.
2. Division 8 (ss 66P-66Y) is headed "Sale of residential property". The meaning of "residential property" is defined in s 66Q. The property the subject of the deeds and contracts for sale in this case is residential property within the meaning of s 66Q.
3. A cooling-off period in relation to contracts for the sale of residential property is provided for in s 66S which is in the following terms: 66S Cooling off period (1) Subject to section 66T, there is to be a cooling off period for every contract for the sale of residential property, during which the purchaser may exercise rights under section 66U. (2) The cooling off period commences when the contract is made. (3) The cooling off period ends at 5 pm - (a) on the tenth business day after the day on which an off the plan contract was made, or (b) in any other case - on the fifth business day after the day on which the contract was made. (4) The cooling off period may be extended by a provision in the contract, or by the vendor in writing before the end of the cooling off period. (5) The cooling off period may be shortened by a provision in the contract, or by a separate written or oral agreement of the parties, but the provision or agreement does not take effect unless and until the purchaser gives to the vendor (or the vendor's solicitor or agent) a certificate that complies with section 66W. (6) The extension or shortening of the cooling off period may be effected under subsection (4) or (5) before, at or after the time the contract is made. (7) The regulations may prescribe the maximum length of time by which the cooling off period for an off the plan contract may be shortened under subsection (5). Purchaser is defined in s 66P to include a prospective purchaser; vendor is defined in the same section to include a prospective vendor.
4. Section 66T, to which s 66S is subject, provides: 66T No cooling off period in certain cases There is no cooling off period in relation to a contract for the sale of residential property if - (a) at or before the time the contract is made, the purchaser gives to the vendor (or the vendor's solicitor or agent) a certificate that complies with section 66W, or (b) the property is sold by public auction, or (c) the contract is made on the same day as the property was offered for sale by public auction but passed in, or (d) the contract is made in consequence of the exercise of an option to purchase the property, other than an option that is void under section 66ZG.
5. Section 66U relevantly provides: 66U Cooling off rights (1) The purchaser under a contract for the sale of residential property may serve a written notice to the effect that the purchaser rescinds the contract. (2) The notice may only be served during the cooling off period, but is ineffective if served after completion.
6. The consequences of a rescission under s 66U are set out in s 66V. This section is of particular relevance to the second of the separate questions. Section 66V provides: 66V Consequences of rescission (1) On service of an effective notice of rescission in accordance with section 66U in relation to a contract for the sale of residential property, the contract is to be taken to be rescinded ab initio, but subject to the rights and obligations conferred by this section. (2) The purchaser forfeits 0.25 per cent of the purchase price of the property to the vendor. (3) The amount forfeited may be recovered from any deposit paid under the contract. (4) If the deposit is insufficient, the balance of any amount forfeited may be recovered from the purchaser as a debt in any court of competent jurisdiction. (5) The balance of the deposit remaining after deduction of any amount forfeited is payable to the purchaser. (6) Subject to subsection (7), neither the vendor nor the purchaser is liable to pay any other sum for damages, costs or expenses. (7) Either party is entitled to make a claim for - (a) such compensation, adjustment or accounting as is just and equitable between the vendor and purchaser where the purchaser has received the benefit of possession of the property, or (b) the payment of damages, costs or expenses arising out of a breach of any term, condition or warranty contained or implied in the contract (other than a term, condition or warranty referred to in section 52A), but not so as to affect rights and obligations arising under this Division. (8) The vendor may agree to waive any rights regarding forfeiture under this section. (9) Duty ceases to be payable on a contract rescinded under this Division, and any duty already paid on it is refundable under the Duties Act 1997. (10) In this section, deposit includes any amount paid by the purchaser in relation to the contract or on account of the purchase price of residential property.
7. Section 66T(d) is of central importance to the first of the separate questions. The solicitors contend that the plaintiff did not have any right to rescind the contracts under s 66U because the contracts were made "in consequence of the exercise of an option to purchase" within the meaning of s 66T(d). The cross-claimants contend that the contracts were not of that character because they were not made in consequence of the exercise of an option to purchase; they were made in consequence of the exercise of a put option which should not be regarded as an option to purchase.
8. It is accepted by both sides that the notion of an option to purchase within s 66T(d) is informed by a consideration of Division 9 of Part 4 of the Act.
9. Division 9 (ss 66Z to 66ZK) is headed "Options for purchase of residential property". The expression "option to purchase" appears many times throughout the Division. A similar expression, "option granted for the purchase" also appears, notably in s 66ZG (which is itself referred to in s 66T(d)). Neither expression is defined in the definitions section (s 66Z).
10. Division 9 provides for its own cooling-off period in s 66ZB, which is in the following terms: 66ZB Cooling off period (1) Subject to section 66ZC, there is to be a cooling off period for every option to purchase residential property, during which the purchaser may exercise rights under section 66ZD. (2) The cooling off period commences when the option is granted. (3) The cooling off period ends at 5 pm on the fifth business day after the day on which the option was granted. (4) The cooling off period may be extended by a provision in the option, or by the vendor in writing before the end of the cooling off period. (5) The cooling off period may be shortened by a provision in the option, or by a separate written or oral agreement of the parties, but the provision or agreement does not take effect unless and until the purchaser gives to the vendor (or the vendor's solicitor or agent) a certificate that complies with section 66ZF. (6) The extension or shortening of the cooling off period may be effected under subsection (4) or (5) before, at or after the time the option is granted.
11. Section 66ZC, to which s 66ZB is subject, provides: 66ZC No cooling off period in certain cases There is no cooling off period in relation to an option to purchase residential property if - (a) at or before the time the option is granted, the purchaser gives to the vendor (or the vendor's solicitor or agent) a certificate that complies with section 66ZF, or (b) the option is granted on the same day as the property was offered for sale by public auction but passed in.
12. Section 66ZD relevantly provides: 66ZD Cooling off rights (1) The purchaser under an option to purchase residential property may serve a written notice to the effect that the purchaser rescinds the option. (2) The notice may only be served during the cooling off period.
13. The consequences of a rescission under s 66ZD are set out in s 66ZE which is in the following terms: 66ZE Consequences of rescission (1) On service of an effective notice of rescission in accordance with section 66ZD in relation to an option to purchase residential property, the option is to be taken to be rescinded ab initio, but subject to the rights and obligations conferred by this section. (2) The purchaser forfeits 0.25 per cent of the purchase price of the property to the vendor. (3) The amount forfeited may be recovered from any consideration paid in relation to the option or from any deposit paid in relation to the purchase of the property. (4) If the consideration or deposit is insufficient, the balance of any amount forfeited may be recovered from the purchaser as a debt in any court of competent jurisdiction. (5) The balance of the consideration or deposit remaining after deduction of any amount forfeited is payable to the purchaser. (6) Subject to subsection (7), neither the vendor nor the purchaser is liable to pay any other sum for damages, costs or expenses. (7) Either party is entitled to make a claim for - (a) such compensation, adjustment or accounting as is just and equitable between the vendor and purchaser where the purchaser has received the benefit of possession of the property, or (b) the payment of damages, costs or expenses arising out of a breach of any term, condition or warranty contained or implied in the option, but not so as to affect rights and obligations arising under this Division. (8) The vendor may agree to waive any rights regarding forfeiture under this section. (9) Duty ceases to be payable on an option rescinded under this Division, and the provisions of the Duties Act 1997 relating to the refund of any duty paid on a rescinded agreement for the sale of property apply in relation to any duty already paid on the rescinded option. (10) In this section, deposit includes any amount paid by the purchaser in relation to the proposed contract attached to the option or on account of the purchase price of residential property.
14. Finally, s 66ZG provides: 66ZG Option void in certain circumstances (1) An option granted for the purchase of residential property is void - (a) (Repealed) (b) if it is exercisable within 42 days after it is granted or, if a different period is prescribed, within that period. (1A) (Repealed) (2) If an option is void under this section, section 66ZE applies as if an effective notice of rescission of the option had been served under this Division, except that - (a) the purchaser is not liable to the forfeiture provided for under that section, and (b) that section has effect as if it provided that the whole of the consideration paid in relation to the option and the whole of any deposit paid in relation to the purchase of the property are payable to the purchaser. As already noted, this section is referred to in s 66T(d).
15. Reference should also be made to the definitions of "purchaser" and "vendor" found in s 66Z. For Division 9, "purchaser" is defined to include a prospective purchaser and also includes a grantee or prospective grantee of an option; "vendor" is defined to include a prospective vendor and also includes a grantor or prospective grantor of an option.

Question 1: Has the Plaintiff validly rescinded the Sale Contracts?

1. This question depends upon whether the plaintiff had the benefit of a cooling-off period in respect of the contracts under s 66T of the Act, so that it had rights of rescission under s 66U. There being no doubt that the contracts are contracts for the sale of residential property, there will have been a cooling-off period unless one of the exceptions set out in s 66T applied. The only exception that might apply in the present case is s 66T(d) which operates if the contract is made in consequence of the exercise of an option to purchase the property, other than an option that is void under s 66ZG.
2. The cross-claimants submitted that the contracts were made in consequence of the exercise of a put option, and that a put option cannot be described as an option to purchase. Rather, a put option is an option to sell, or perhaps an option to require someone else to purchase. It was submitted that the expression "option to purchase", as found in s 66T(d) and also throughout Division 9, should be given its ordinary and natural meaning; that is to say, an option (in the nature of a call option) granted to a party which, if exercised, entitles the party to purchase property. This construction was said to be consistent with the language of the relevant provisions of Division 8 and Division 9 of Part 4 of the Act, and also the legislative purposes as identified in relevant extrinsic materials. It was submitted that it was not open to the Court to uphold the alternate construction advanced by the solicitors as it involves a departure from the ordinary and natural meaning of the legislative language, and it is not plain that parliament intended such a meaning (see Esso Australia Pty Ltd v Australian Workers' Union (2017) 263 CLR 551; [2017] HCA 54 at [52]). The cross-claimants thus submitted that Question 1 should be answered "Yes".
3. The solicitors posed the issue as whether the words "option to purchase" in s 66T(d) include an option to require the purchase of land (i.e. a put option) or are instead confined to an option to call for the purchase of land (i.e. a call option). The solicitors submitted that the broader interpretation was reasonably open because: 1. a put option is an option whereby a property owner can compel a prospective purchaser "to purchase" the property (see C&P Syndicate Pty Ltd v Reddy (2013) 16 BPR 31,771; [2013] NSWSC 643 at [65]); 2. upon exercise of either a put option or a call option a contract "to purchase" is thereby formed; and 3. the word "to" is reasonably capable as being read as "leading to" or "pertaining to".
4. The solicitors submitted that the legislation had to be read in light of the mischief it was designed to overcome and its objects (see CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [78]; Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193; [2005] HCA 58 at [124]; see also Interpretation Act 1987 (NSW), s 33). It was submitted, by reference to the Second Reading Speech, that the purpose of Division 9 was to confer cooling-off rights on a prospective purchaser of residential land pursuant to an option. It was then submitted that because a prospective purchaser under a contract made pursuant to an option already had cooling-off rights under Division 9 in respect of the option, s 66T(d) provided that there would be no further cooling-off period under Division 8 in respect of any contract for sale that arises as a result of the exercise of the option.
5. The solicitors pointed to what were said to be anomalous results if "option to purchase" within Division 9 and s 66T(d) was read as restricted to call options. For example, a prospective purchaser under a call option and a put option would have cooling-off rights at different times, and is potentially liable to pay "the cooling-off fee" (of 0.25% of the purchase price) twice - once if cooling-off rights are exercised in respect of the call option and again if cooling-off rights are exercised in respect of the contract that arises on exercise of the put option. The solicitors further submitted that it would be inimical to the purpose for which Division 9 was enacted if the additional protections for prospective purchasers contained in the Division did not apply to put options.
6. In summary, the solicitors submitted that as the expression "option to purchase" within s 66T(d) and Division 9 includes the put options granted by the plaintiff, the plaintiff had cooling-off rights under Division 9 in respect of the put options (which it did not exercise), but had no cooling-off rights under Division 8 in respect of the contracts that came into existence upon the exercise of the put options. Accordingly, the purported rescissions of the contracts by the plaintiff were invalid, and Question 1 should be answered "No".
7. In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27; [2009] HCA 41 it was stated in the joint judgment at [47]: This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy. (See also Certain Lloyd's Underwriters v Cross (2012) 248 CLR 378; [2012] HCA 56 at [23]-[25].)
8. Divisions 8 and 9 were introduced into Part 4 of the Act (in largely the form they are in today) in 1990. A reading of the provisions reveals an intention to introduce cooling-off periods, subject to specified exceptions, in two areas - namely, contracts for the sale of residential property (Division 8) and options to purchase residential property (Division 9). One of the specified exceptions for Division 8 is a contract made in consequence of the exercise of an option to purchase the property (other than an option that is void under s 66ZG). So, in the case of an option to purchase, there is generally a cooling-off period which gives the purchaser under the option the right to rescind the option, but no cooling-off period in respect of a contract made in consequence of the exercise of the option.
9. As already noted, the expression "option to purchase" is not defined for the purposes of Division 9. Neither is the similar expression "option granted for the purchase", found in s 66ZG. It can be presumed that parliament did not think it necessary to define the expressions, being content to express its intention through the ordinary meaning of the words themselves, read in their context as part of the Act as a whole.
10. In my view, the ordinary and natural meaning of the expression "option to purchase" is an option able to be taken (by the holder of the option) to purchase certain property. The expression is apt to describe the exercise of a choice to do something, namely, purchase property. A call option, as generally understood, is an option of that character. A holder or grantee of a call option is able to exercise the option so as to purchase the property. On the other hand, a put option, as generally understood, is not an option of that character. A holder or grantee of a put option is able to exercise the option so as to sell the property to the grantor or, put another way, require the grantor to purchase the property. It is not the exercise of a choice to purchase property.
11. The inclusive definitions of "purchaser" and "vendor" found in s 66Z seem to me to be consistent with this interpretation. A purchaser under such an option to purchase (see s 66ZD) can be readily described as a prospective purchaser and also a grantee of an option. A vendor under such an option to purchase (see s 66ZA) can be readily described as a prospective vendor and also a grantor of an option.
12. These definitions would be less coherent if option to purchase within Division 9 extended to put options. Whilst the purchaser in respect of a put option can be regarded as a prospective purchaser, it is the grantor of the option not the grantee. Similarly, whilst the vendor in respect of a put option can be regarded as a prospective vendor, it is the grantee of the option not the grantor.
13. The relevant Second Reading Speech, given to the Legislative Assembly on 21 November 1989 by the Honourable Mr Causley, includes the following: The purpose of these bills is to amend the legislative package known as the anti-gazumping legislation, which was introduced by the former Government and commenced operation on 1st June, 1988… … The main feature of the new scheme is that a purchaser of residential property will have a five-business-day cooling off period following exchange of contracts. During that cooling off period a purchaser may rescind the contract by giving written notice to the vendor or the vendor's solicitor or agent. A purchaser who exercises cooling off rights and rescinds the contract during that period will forfeit to the vendor 0.25 per cent of the purchase price. This sum will be deducted from the normal deposit paid on exchange and the balance of that deposit will be refunded to the purchaser. The cooling off period may be waived entirely, or shortened, by a purchaser producing a certificate from a solicitor or barrister stating that the effect of the contract and the effect of giving the certificate have been explained to the purchaser. In addition, there will be no cooling off period where the property is sold by public auction or where the property is passed in at auction but contracts are exchanged later that same day or where the contract is made pursuant to the exercise of a valid option. … A new division 9 has been introduced containing a rationalization of the law of options. The intention is to place options as nearly as possible in the same position as contracts for the purposes of cooling off rights and vendor disclosure and warranty requirements. In the same way as a purchaser under a contract, a grantee under an option will have a five-business-day cooling off period from the date of grant of the option. A grantee who exercise the cooling off rights and rescinds the option within the cooling off period will forfeit 0.25 per cent of the proposed purchase price of the property but will not forfeit the whole of the option fee. Similarly, as with a contract situation, a grantee under an option may waive or shorten the cooling off period on production of a certificate signed by a solicitor or barrister. Options must also contain a statement alerting the parties to the relevant cooling off rights. A copy of the proposed contract and all vendor disclosure documents must be attached to the option at the time of grant. If they are not attached, either party may withdraw at any time up to five business days after the option is exercised. Regulations will be made adopting for options terms and warranties similar to those prescribed for contracts under section 52A of the Conveyancing Act. The vendor disclosure requirements and warranties will apply as at the date of granting the option but will not apply again to a contract consequent upon the exercise of such an option. The existing ban on short-term options as been retained and extended to cover options exercisable within 42 days of the grant. This extension is necessary to allow grantees and their solicitors sufficient time to obtain the necessary searches and certificates to test the vendor warranties contained in the option. Both the grantor and grantee must now sign the option document otherwise the option will be void. That means that for the first time a grantee will have to sign an option. This is intended to ensure that a grantee is more likely to appreciate the significance of accepting an option and to overcome a common complaint with existing procedures where a grantee can be bound by the terms of the option, and thereby stand to lose a possibly substantial option fee, without signing or even seeing the option document. Also, options will be required to be in duplicate, a move designed to encourage both parties being given a copy of the document they sign. …
14. The speech tends to suggest an intention to confer cooling-off rights upon grantees of options. As cooling-off rights are given to the purchaser under an option to purchase, and as a purchaser under a call option is also the grantee of the option, this suggests that the options intended to be the subject of the legislation are in the nature of call options where the grantee can choose to purchase the relevant property.
15. As I have said, the purchaser in respect of a put option can be regarded as a "prospective purchaser" and can thus fall within the notion of "purchaser" under Division 9. However, it remains the case that the cooling-off rights under Division 9 are conferred upon purchasers under an "option to purchase". Again, I do not think that a put option falls within the ordinary and natural meaning of an option to purchase. Had it been the intention of parliament to include put options within Division 9, it could be expected that language suitable for that purpose would have been employed rather than the expression "option to purchase". The construction favoured by the solicitors seems to me to put undue strain upon the chosen language, and is tantamount to reading words in. The solicitors themselves suggest that the expression can be read as "option to compel a purchase", "option leading to a purchase" or "option pertaining to a purchase". To my mind, "to" in "option to purchase" is concerned with the nature of the choice given by the option; that is to say, what can be chosen. An option to purchase thus gives the holder or grantee a choice to purchase.
16. I have considered the matters the solicitors say amount to anomalies if the cross-claimants' interpretation of the legislation is upheld. I accept that if Division 9 of the Act is held to be confined to options in the nature of call options, and where (as in this case) a call option is granted in conjunction with a put option, the potential exists for consequences of the types described in the submissions. However, I do not regard these consequences as absurd or plainly unintended. They are really the product of an apparent legislative choice (reflected in the Second Reading Speech) to confine the central subject matter of Division 9 to options in the nature of call options. As submitted by the cross-claimants, it is not the function of the Court to seek to overcome what might be thought to be unintended consequences of legislation by construing the legislation as if it had a meaning that parliament did not intend it to have (see Esso Australia Pty Ltd v Australian Workers' Union (supra) at [52]; see also Certain Lloyd's Underwriters v Cross (supra) at [26]). I would add, however, that insofar as purchasers under put options are concerned, they will obtain the benefit of the protections contained within Division 8 (including as to a cooling-off period) in relation to any contract for sale that arises from the exercise of the put option. Of course, the cooling-off period is excluded in some circumstances (as is the case with the cognate protections within Division 9), including if the purchaser gives a certificate that complies with s 66W. No s 66W certificates were provided in the present case.
17. For the above reasons, I have concluded that the expression "option to purchase" as found within Division 9 and s 66T(d) should be construed to mean an option in the nature of a call option, which gives the holder or grantee the right to purchase the relevant property. I have reached the same conclusion in respect of the expression "option granted for the purchase" found within s 66ZG. In my view, that expression does not bear a different or wider meaning.
18. Finally, I note that these conclusions are consistent with the view of s 66ZG expressed by Barrett J (as his Honour then was) in Evolution Living Property Management Pty Ltd v CSP Australia Pty Ltd [2010] NSWSC 65 at [20], but inconsistent with the view expressed by Ward CJ in Eq. in Dacco Pty Ltd v CV Crows Nest Fund Pty Ltd [2020] NSWSC 1550 at [78] concerning cl 13 of the Conveyancing (Sale of Land) Regulation 2017. The views of those learned judges are naturally to be afforded great weight and respect. However, neither case involved a contested hearing with a contradictor on the relevant point. The parties drew my attention to the decisions, and pointed out that they involved circumstances different from those present here. Neither party suggested that the decisions provided much assistance on the questions now before the Court, and neither suggested that I was bound, even as a matter of comity, to follow either decision.
19. In conclusion, it is my opinion that a cooling-off period applied in relation to the contracts for sale that arose upon the exercise of the put options, and was not excluded by the operation of s 66T(d). It follows that the plaintiff, as the purchaser under such contracts, was entitled to rescind the contracts (as it purported to do) within the cooling-off period pursuant to s 66U. Accordingly, Question 1 should be answered "Yes".

Question 2: Is the Plaintiff entitled to a refund of the amounts paid as the Call Option Fee nominated in Item 1 of each Option Deed as the deposit credited under each respective Sale Contract (less 0.25% of the purchase price nominated on the front page of that Sale Contract)?

1. The solicitors did not accept that if Question 1 was answered in the affirmative then Question 2 should also be answered affirmatively. The solicitors referred to s 66V which provides that upon a rescission in accordance with s 66U the purchaser forfeits 0.25% of the purchase price of the property. That amount may be recovered from any deposit paid under the contract, and any balance of the deposit remaining after deduction of any amount forfeited is payable to the purchaser (see s 66V(3) and (5)). However, the solicitors referred to cl 4.2 of the deeds and submitted that the proper characterisation of the Call Option Fee is not a deposit but rather a non-refundable fee.
2. I do not think that is correct. Clause 2.4(a) of the deeds provides that the Call Option Fee is not refundable except in certain defined events which are not relevant here. However, cl 2.4(b) goes on to qualify cl 2.4(a) by stating that if either the Call Option or the Put Option is exercised, then the Call Option Fee will be credited as the Deposit under the relevant contract for sale that arises under either cl 2.7 or cl 3.6. This is reinforced by cl 4.1(d). Clause 4.2, when read in this context, should be construed so that it operates only if neither option is exercised.
3. It seems to me that in circumstances where the Put Option is exercised, the Call Option Fee is credited as the Deposit under the contract pursuant to cl 2.4(b). The Call Option Fee should thus be regarded as an amount paid by the purchaser "in relation to the contract or on account of the purchase price" of the property within the meaning of s 66V(10). On that basis, the amount of the Call Option Fee falls within the notion of the deposit for the purposes of s 66V. It follows that upon the rescission by the plaintiff of each of the contracts, the plaintiff forfeited an amount equal to 0.25% of the purchase price. The vendors were entitled under s 66V(3) to recover that amount from the Call Option Fee, which is treated as the deposit paid under the contract. However, the remaining balance of the Call Option Fee became payable to the plaintiff pursuant to s 66V(5). Further, to the extent that it is not inconsistent with s 66V, cl 19.2.1 of each contract would allow the plaintiff to recover the deposit following the rescission of the contract by the plaintiff (see s 66Y(4) of the Act).
4. For these reasons, Question 2 should also be answered "Yes".

Conclusion

1. The Court will order that each of the separate questions be answered "Yes". The Court will further order that the solicitors pay the cross-claimants' costs of the hearing of the separate questions.

Amendments 22 March 2021 - Typographical errors contained within quote at [45]. 24 June 2021 - Addition of missing word: [32] and [47]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 June 2021