Carbone v Mills

Events leading up to entry into Option Agreement on 4 September 2012

1. Mr Carbone, who had for some years conducted farming operations in Western Australia, decided that he wanted to move his operations to northern New South Wales. In July 2012 Mr Carbone made contact with a real estate agent, Mr Paul Leahy (of Sloss and Company, Goondiwindi), in relation to his search for property in northern New South Wales. Mr and Mrs Carbone inspected some properties in the area with Mr Leahy in late July 2012 but these possibilities were not further pursued.
2. In early August 2012 Mr Leahy spoke to Mr Mills about possibly selling Wolonga and Taringa. Mr Leahy then provided some information about the properties to Mr and Mrs Carbone. Arrangements were made for Mr and Mrs Carbone to inspect the properties on 10 August 2012.
3. The inspection was attended by Mr and Mrs Carbone, Mr Leahy and Mr Mills. The discussion that occurred on that occasion included some negotiations as to the terms of an agreement in relation to the properties. This discussion, and a later discussion (held at the motel where the Carbones were staying), are of central importance to the plaintiffs' claims, in particular the claim that the agreement includes oral terms, and the claim for rectification. It will be necessary to return to the evidence concerning those discussions.
4. On 10 August 2012 Mr Carbone retained a solicitor, Mr Lachlan Wilson (of Doyle Wilson), to act in relation to the transaction. On the same day, Mr Mills' solicitor, Mr Michael Cowley (of Fox and Thomas), sent an email to Mr Wilson which attached a draft contract for sale in relation to Taringa, and a draft Option Agreement in relation to Wolonga. Mr Wilson gave evidence that he did not send that draft of the Option Agreement to Mr and Mrs Carbone.
5. On 13 August 2012 Mr Mills signed an agency agreement appointing Sloss and Company as selling agents. On 15 August 2012 Mr Leahy sent to both solicitors a sales advice he had prepared.
6. On 17 August 2012 Mr Cowley sent an email to Mr Wilson in which it was stated that a Notice to Complete (expiring on 3 September 2012) had been served on the existing purchaser of Taringa, Johnchap Pty Ltd. The email also raised a number of matters to be incorporated into the terms of the proposed agreements between Mr Mills and Mr and Mrs Carbone. Mr Carbone agreed that he read this email on about 17 August 2012. He further agreed that the email said nothing about the commencement date of the call option, and that he was content for the solicitors to prepare draft documents broadly in accordance with what was contained in the email.
7. On 24 August 2012 Mr Wilson sent an email to Mr Cowley which included some suggested amendments to the draft agreements. Later on 24 August 2012 Mr Cowley sent further drafts of the contract for sale and option agreement. Mr Wilson promptly forwarded the draft agreements to Mr Carbone, and requested that Mr Carbone read through them in advance of a meeting to be held in the following week when Mr Wilson would "go through" the documents with Mr Carbone.
8. Mr Carbone agreed that he read the draft agreements. He gave evidence that after reading the draft option agreement he was satisfied that the proposed term of the lease was for four years. In cross-examination, Mr Carbone explained that this was "because the option agreement was for four years". Mr Carbone further agreed that this understanding came from reading cl 1.1(3) of the draft option agreement. That clause, which remained in that form thereafter, provided that the Call Option Lapse Date was the "date that is 4 calendar years from the date of this Agreement".
9. Mr and Mrs Carbone met with Mr Wilson on 28 August 2012. There was a discussion about the draft agreements. Mr Wilson gave evidence that he did not discuss the Call Option Commencement Date or Call Option Lapse Date with Mr Carbone on that occasion.
10. On 29 August 2012 Mr Wilson sent a letter to Mr Cowley to confirm various matters that had been discussed between them in a telephone conversation, and to request certain amendments to the draft agreements.
11. On 30 August 2012 Mr Cowley sent an amended draft option agreement to Mr Wilson. Mr Wilson forwarded the amended draft to Mr Carbone by email, stating that he would contact Mr Carbone to discuss the agreement.
12. Mr Carbone met with Mr Wilson later on 30 August 2012. Mr Wilson deposed that he did not discuss the Call Option Commencement Date or the Call Option Lapse Date with Mr Carbone on this occasion either. However, in cross-examination, Mr Wilson accepted that he took Mr Carbone through the draft option agreement and discussed parts of it with Mr Carbone, including cl 1.1(2). Mr Wilson's note of this meeting suggests that there was some discussion about cl 1.1(2). As confirmed by Mr Wilson, the reference in the note to cl 1.1(2) is to the definition of Call Option Commencement Date. The definition contained in the draft referred to "the date of this Agreement". Mr Wilson appears to have thought that the definition was incorrect, and should instead refer to the date the other contract concerning the Property came to an end. (The other contract in contemplation was evidently Johnchap Pty Ltd's Option Agreement with respect to Wolonga). Mr Wilson accepted that he probably had a discussion with Mr Carbone about that matter. Mr Wilson said he had no recollection of taking Mr Carbone to the definition of Call Option Lapse Date (cl 1.1(3)), and it was possible that he did not raise it with Mr Carbone. Mr Carbone, despite initially maintaining in cross-examination that he did not discuss cl 1.1 with Mr Wilson at all, eventually conceded that he and Mr Wilson went through the draft agreement "paragraph by paragraph", including cl 1.1.
13. After his meeting with Mr Carbone, Mr Wilson had a telephone conversation with Mr Cowley. It is likely that Mr Wilson requested that certain amendments be made, including to the definition of Call Option Commencement Date. Later in the afternoon of 30 August 2012 Mr Wilson received an email from Mr Cowley which stated that all bar one of the requested amendments were agreed. Mr Cowley sent further amended drafts to Mr Wilson late in the evening of 30 August 2012.
14. On 31 August 2012 Mr Wilson sent an email to Mr Cowley stating that the agreements appeared to be in order. Later on 31 August 2012 Mr Cowley had contracts delivered to Mr Wilson for execution and exchange.
15. However, on 3 September 2012 Mr Wilson requested an amendment to the Option Agreement in respect of when the Premium was due to be paid. This issue was the subject of some negotiations which led to the making of handwritten amendments to cll 2 and 8 of the final form of the option agreement. There were also amendments made to the Taringa sale contract in respect of the payment of the deposit.
16. The Taringa sale contract and the Option Agreement were both exchanged on 4 September 2012.
17. The Taringa sale contract provided for the plaintiffs to purchase that property (Lot 1 in Deposited Plan 1174741) for a price of $2,203,920. The completion date under the contract was expressed to be four weeks from termination of the Other Contract, being the contract for the sale of the property entered into between the defendant and Johnchap Pty Ltd.

The Option Agreement

1. The Agreement was made between the defendant as Vendor and the plaintiffs as Purchaser. The Agreement is stated to be "made 4th September 2012".
2. Clause 2.1 provides: In consideration of the Premium paid by the Purchaser the Vendor grants to the Purchaser or his nominee an irrevocable option to purchase the Property for the price and subject to the terms and conditions which are contained in the Contract.
3. The Premium is defined as the sum of $386,967. The Property is defined in cl 1.1(11), by reference to an attached contract for sale, as Lot 2 in Deposited Plan 1174741, being Wolonga. The Contract is defined as that attached contract. The option granted under cl 2.2 is defined in cl 1.1(2), where first appearing, as the Call Option.
4. Clause 3.1 concerns a Put Option granted by the Purchaser to the Vendor.
5. Clause 4.1 provides: The Call Option may be exercised by the Purchaser on or after the Call Option Commencement Date but before 5pm on the Call Option Lapse Date by giving Notice of Exercise of Call Option.
6. The Call Option Commencement Date is defined in cl 1.1(2), where second appearing, to mean the date of termination of the Other Option. Other Option is in turn defined (in cl 24.1) as the option the defendant had granted to another party in respect of the Property. The Call Option Lapse Date is defined in cl 1.1(3) as the date that is 4 calendar years from the date of this Agreement.
7. Clause 7.1 provides that if an Option is not exercised before 5pm on the relevant Option Lapse Date then that Option will lapse.
8. Clause 8.1 provides that the Premium must be paid to the Vendor on or before 24 September 2012. Clause 8.4 provides that if an Option is exercised the Premium must be applied in part payment of the Deposit payable pursuant to the Contract.
9. Clause 11 relevantly provides: 11.1 Subject to clause 11.2, the Purchaser may have possession of the Property on the conditions contained in Schedule 4 from the later of the following dates: (1) the date it pays the Premium; or (2) the date of this Agreement. 11.2 If the Vendor is not able to provide possession of the Property at the date of this Agreement, the Vendor must do all reasonably required of him in an expeditious manner to enable him to give possession of the Property to the Purchaser as soon as reasonably practicable.
10. Clause 11.3 then provides for the Purchaser to pay an occupation fee of $150,000 (plus GST) per annum. A payment of $150,000 (plus GST) was payable six months from the date of the Agreement, and payments of $75,000 (plus GST), adjusted in accordance with movements in the Consumer Price Index, were payable every six months thereafter until completion of the Contract (being the attached contract for sale).
11. Clauses 12 to 14 concern acts of default under the Agreement, and termination for default.
12. Clause 15 provides: 15.1 If the Purchaser does not pay any monies payable to the Vendor on the due date for payment, the Purchaser must pay to the Vendor interest at the rate of 15% per annum on all moneys payable hereunder from the day on which the same are due for payment hereunder up to and including the date of payment and such interest shall be paid by the Purchaser to the Vendor together with such moneys payable hereunder and any exercise of the Option by the Purchaser will not be effective until and unless such interest is paid. 15.2 This clause does not in any way affect or prejudice the rights of the Vendor under this Agreement in respect of default by the Purchaser, including the right of termination of this Agreement.
13. Clause 20 provides: 20.1 This Agreement is conditional on the entering into of a Contract for Sale (Other Contract) between the Vendor as vendor and the Purchaser as purchaser with respect to the Land described as Lot 1 in Deposited Plan 1174741, Folio 1/1174741. 20.2 Default by the vendor under the Other Contract will be deemed to be default by the Vendor under this Agreement. 20.3 Default by the purchaser under the Other Contract will be deemed to be default by the Purchaser under this Agreement. 20.4 Termination of the Other Contract will effect termination of this Agreement.
14. Clause 24 provides: 24.1 The Vendor has entered into an Option for the sale of the Property (Other Option) to another party (Other Purchaser). 24.2 The Vendor intends to terminate the Other Option if completion of the sale of the Vendor's property known as "Taringa" North Star to the Other Purchaser, is not effected on 3 September 2012. 24.3 This Option is conditional on the termination of the Other Option by the Vendor. 24.4 Either party may terminate this Agreement by notice in writing to the other if the Other Option has not been terminated by 7 September 2012. If this Agreement is terminated under this clause the Premium must be refunded to the Purchaser.
15. The attached contract for sale in respect of Wolonga provided for a purchase price of $3,869,670, with a deposit of $386,967. By Additional Condition 65.1, the Completion Date under the contract was the earlier date of: 1. one calendar month after the completion of the sale of the Purchaser's Property referred to in the Option (being a property owned by the plaintiffs in Salmon Gums, Western Australia); or 2. 48 calendar months from the date of the Option.
16. Schedule 4 to the Option Agreement contains the terms upon which the Purchaser may take possession pursuant to cl 11.1. By cl 2.1 of Schedule 4 the Purchaser is entitled to use the Property only for the purpose of farming and grazing. Clause 6.1 refers to the "licence" granted to the Purchaser and states that it is personal to the Purchaser and unable to be assigned. Clause 10.2 provides that possession by the Purchaser will not give rise to a relationship of landlord and tenant. Clause 13.1 provides that the Vendor has the right to occupy the homestead on the land for six months from the date of the Agreement upon certain conditions, including that the Vendor may have non-exclusive use of the sheds and grain storage on the land, may store plant, equipment and machinery on the land, and may have access to the property to inspect and maintain such. Clause 13.2 provides that possession of the Property by the Purchaser will be deemed to be non-exclusive with respect to the Vendor. Clause 13.3 describes further rights of the Vendor to enter upon the Property for various purposes.
17. Entry into the Taringa sale contract on 4 September 2012 satisfied the condition referred to in cl 20.1 of the Option Agreement. Later on 4 September 2012, Mr Cowley gave notice to Mr Wilson that the Other Option referred to in cl 24.3 of the Option Agreement had been terminated, thus satisfying the condition referred to in that clause. It appears therefore that the Option Agreement became unconditional in its operation from 4 September 2012. It follows that the Call Option Commencement Date became 4 September 2012.
18. The Premium, required by cl 8.1 to be paid by 24 September 2012, was in fact paid on 26 September 2012. Accordingly, the plaintiffs became entitled to possession of Wolonga pursuant to cl 11.1 of the Option Agreement from 26 September 2012.
19. As noted earlier, the plaintiffs contend that the Option Agreement contains oral terms, and is thus not wholly embodied in the written Option Agreement that was exchanged on 4 September 2012. Putting that issue aside for a moment, and assuming that all the terms are embodied in the written instrument, the plaintiffs submitted that the written Option Agreement should be construed such that there was a "Call Option period" of 4 years running from the date the plaintiffs took possession of the Property. It was put that the definition of Call Option Lapse Date should be read in that fashion (notwithstanding that it refers to 4 calendar years "from the date of this Agreement") "in order to reflect the commercial objective to provide a 4 year Call Option period that would run concurrently with a lease of the Property".
20. In support of their argument the plaintiffs submitted that there was ambiguity in the definition of Call Option Lapse Date, arising from the provisions concerning the payment of the Premium and the giving of possession (cll 2, 8 and 11) and the provisions concerning the conditionality of the Agreement (cll 20 and 24), and that the Court should have regard to the surrounding circumstances including the pre-contractual discussions about the duration of a lease and call option.
21. The defendant submitted that it was clear from the words of the definition of Call Option Lapse Date, which referred to "the date of this Agreement", and the date of the making of the Agreement (4 September 2012) written at the top of the same page, that the Call Option lapses four years from that date. The defendant stressed the limits to which surrounding circumstances may be legitimately used in the task of construing a written agreement.
22. In Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640; [2014] HCA 7 a majority of the High Court stated (at [35]): The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
23. More recently, in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 Kiefel, Bell and Gordon JJ stated at [16]: It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
24. The language of the Option Agreement must therefore be considered in conjunction with the surrounding circumstances known to the parties and the commercial purposes or objects to be secured by the contract (see also Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [71]). The identification of those matters calls for consideration of the evidence as to what passed between the parties and what was known and understood by them up to the time the Option Agreement was entered into.
25. In this regard, the plaintiffs placed considerable reliance upon what was said at meetings between Mr Mills and Mr Carbone (including in the presence of others) about the plaintiffs obtaining a lease and an option over Wolonga. These conversations are also of importance to the plaintiffs' contentions concerning the existence of oral terms, and rectification. Accordingly, it is necessary to deal with this evidence in some detail.

Meetings prior to 4 September 2012

1. The first relevant meeting occurred in the course of the inspection of the properties on 10 August 2012. Mrs Carbone and Mr Leahy were also present on that occasion. Mr Carbone deposed that a conversation to the following effect took place "whilst driving around in a car". Mr Carbone deposed (in his affidavit of 15 December 2016): Mr Carbone: "If we purchase "Taringa" I also want to lease "Wolonga" for four years with an option to purchase it at any time." Mr Mills: "I am happy to lease "Wolonga" to you when you buy "Taringa". However I only want to lease it for two years. I will give you a further two years if you need it. You will also have an option to purchase "Wolonga" while you are leasing it." Mr Carbone: "No I want to lease for the whole four years from when we take over and an option purchase. We need four years from when we take over so that we have sufficient time to sell our property in Western Australia or if it does not sell we have sufficient time to build up equity so that we can get finance to buy "Wolonga"." Mr Mills: "Okay I will agree with that."
2. In a later affidavit (of 3 May 2017) Mr Carbone deposed that after Mr Mills agreed to a lease of 4 years the conversation continued with words to the following effect: Mr Mills: "However I also want you to pay GST as well as annual CPI increases on the lease." Mr Carbone: "Well, I'll have to think about that."
3. Mr Carbone deposed that about two days later he again spoke to Mr Mills and informed him on that occasion that he would agree to paying GST and annual CPI increases.
4. Mr Mills deposed to a conversation that occurred whilst driving around in Mr Leahy's vehicle inspecting the properties. According to Mr Mills, the conversation was to the following effect: Mr Carbone: "I'm selling my farm in Western Australia and looking to buy in this area." Mr Mills: "My properties are still under contract to Doug Lomas but I don't think he's going to be able to complete. I'll give you the same deal as I gave him, to purchase Taringa and lease Wolonga for two years, with an option to purchase. The price is $1,450 per acre. It's not negotiable." Mr Carbone: "I will buy at that price, but I want the lease to be four years rather than two. I need four years to be sure that my Western Australia farm will sell." Mr Mills: "Okay."
5. Mr Mills denied that Mr Carbone used the words "from when we take over". Mr Mills maintained that there was no discussion "as to specifically when the option period would commence, or end". Mr Mills also recalled a discussion, possibly on that occasion, to the following effect: Mr Mills: "I agree to the option period being four years, but when your Western Australian farm sells that has to bring the option forward. You have to buy within 30 days of the sale." Mr Carbone: "Okay."
6. Mr Carbone (in his affidavit of 20 July 2017) agreed that Mr Mills said words to that effect, except for the last sentence concerning buying within 30 days.
7. Mrs Carbone deposed (in her affidavit of 20 July 2017), in relation to the discussion held on 10 August 2012, that to the best of her knowledge and belief Mr Carbone said the following words: I want to lease for the whole four years from the date when we take over and an option to purchase.
8. Mr Leahy deposed (in his affidavit of 3 May 2017) that there was a conversation to the following effect on that occasion: Mr Carbone: "I will buy Taringa outright, but I want to lease Wolonga for four years with an option to purchase at $1,450 per acre. This will give me time to sell my Western Australia farm." Mr Mills: "Right I will agree to the four years with the option providing you exercise the option when you sell your Western Australian farm."
9. Mr Carbone further deposed (in his affidavit of 15 December 2016) to a conversation he had with Mr Mills at a later meeting held at the motel where the Carbones were staying. Mr Carbone deposed to a conversation to the following effect: Mr Carbone: "John in relation to "Wolonga" we will lease it for 4 years from when we take over during which time we will also have an Option to Purchase the property for $1,450.00 per acre, a total price of $3,869,670.00. If we sell our Western Australian property in the meantime we will go ahead and buy "Wolonga". Mr Mills: "Yes that's right".
10. In response, Mr Mills again denied that Mr Carbone used the words "from when we take over". He also denied that Mr Carbone said "during which time we will also have an Option to Purchase the property". Mr Mills deposed that the conversation was to the following effect: Mr Carbone: In relation to Wolonga, we will lease it for four years. We will also have a four-year option to purchase the property for $1,450 per acre, a total price of $3,869,670. If we sell our Western Australian property in the meantime, we will go ahead and buy Wolonga immediately. Mr Mills: Yes.
11. Mr Carbone agreed that he used words to that effect except for the word "immediately".
12. The content of these discussions (or at least the discussion on 10 August 2012) was the subject of some cross-examination. Mr Carbone maintained that he had an actual recollection of using the words "from when we take over" during the discussion on 10 August 2012. He said that he remembers very clearly saying "four years from when we take over". He gave similar evidence in relation to the later conversation at the motel.
13. Mrs Carbone stated that she recalled her husband saying the words "from when we take over" during the inspection of the properties. She explained that she could recall the words "because they made sense". She said that in the course of a discussion about the lease and an option to buy, Mr Carbone said that he wanted the lease for four years from when we take over. She also stated that Mr Carbone said he wanted a four year lease from when we take over "with an option to buy at the end".
14. Mr Leahy, who was called in the plaintiffs' case, was not cross-examined about his version of what was said on 10 August 2012.
15. Mr Mills accepted that his recollection of the conversations in August 2012 was not clear, those conversations having occurred almost 6 years ago. He still denied that the words "from when we take over" were said. Mr Mills stated that there was no specific discussion about when the option period would commence. Mr Mills was prepared to accept that the words may have been said, but went on to say that they would have been "out of context" because on 10 August 2012 the discussion was in general terms, not about "the nuts and bolts or nitty gritty of it". Mr Mills agreed that as a matter of fairness, or logic, the lease would not commence until Mr and Mrs Carbone took possession or took over.
16. The witnesses were attempting to recall the details of conversations that occurred more than five and a half years ago. None of the accounts was said to be based on any notes taken of the conversations. The first affidavit dealing with the conversations was Mr Carbone's affidavit sworn more than four years afterwards.
17. In these circumstances, and bearing in mind the litigious context in which the conversations are sought to be recalled, it is difficult to have much confidence in the accuracy of the testimony given (see Watson v Foxman (1995) 49 NSWLR 315 at 318-9).
18. In the witness box, Mr Carbone professed on more than one occasion to have a clear recollection of the content of discussions that occurred in August 2012. However, the reliability of such testimony was significantly undermined when he was forced to concede that he and Mr Wilson had discussed cl 1.1 of the draft option agreement in August 2012, after earlier vehemently insisting that he clearly remembered that it was not discussed. I note further that Mr Carbone conceded in cross-examination that when he made his affidavit dealing with the August 2012 discussions, he was significantly motivated by what he understood to be his interest in the litigation. In my view it is appropriate that Mr Carbone's evidence concerning the content of the conversations be treated with caution.
19. I also have misgivings about the reliability of Mrs Carbone's evidence about the conversations. Her affidavit was not sworn until nearly five years later. It is evident that she read her husband's affidavits that deal with the conversations, before swearing her own. In the witness box she explained that she remembered the words "after we take over" because they made sense. I think it is likely that Mrs Carbone believes those words (which are contained in her husband's affidavits) were said, but this is a reconstruction on her part, not an actual recollection.
20. Mr Mills conceded, to his credit, that his recollection of the conversations was not clear. I was favourably impressed with Mr Mills as a witness. He appeared to me to be doing his best to truthfully answer the questions asked of him, even if that meant making concessions that might be unfavourable to his case. Even allowing that his recollection of the conversations may not be clear, I consider that his evidence is likely to be reasonably reliable.
21. Mr Leahy was not cross-examined about the discussion on 10 August 2012. It was evident from his testimony on other matters that his recollection of the events of 2012 was, understandably, imperfect. I think that Mr Leahy attempted to recall the events as best he could, and give accurate answers to the questions put to him.
22. There is some common ground concerning the conversations. It seems clear that on 10 August 2012 Mr Carbone said that he wanted or needed a four year lease of Wolonga. It also seems clear that this was said in the context of discussion about an option to purchase Wolonga. There is a dispute about whether the words "from when we take over" were used, as contended by Mr and Mrs Carbone. Having regard to my misgivings about their evidence, I am not satisfied that Mr Carbone said that he wanted a lease for four years "from when we take over". I think the evidence of both Mr and Mrs Carbone on this matter is likely to be a reconstruction of what was said, rather than an actual recollection of what was said. That the words were said is not supported by either Mr Leahy or Mr Mills. Further, it seems unlikely that those words were said given that the concept of a four year lease itself suggests a period that commences when possession is taken. The words seem to me to be rather superfluous.
23. It remains necessary to consider whether words were said to the effect that the option to purchase would exist throughout the duration of the lease. It is necessary to consider, for instance, whether Mr Mills said on 10 August 2012 words to the effect of "you will also have an option to purchase Wolonga while you are leasing it", and whether Mr Carbone at a later meeting said words to the effect of "we will lease it for four years…during which time we will also have an Option to Purchase the property".
24. I am not persuaded that there was discussion to that effect. In relation to the discussion on 10 August 2012, I prefer Mr Mills' version to that of Mr Carbone. That is to say, I think it is closer to the substance of the discussion than Mr Carbone's version. I accept Mr Mills' evidence that there was no specific discussion about when the option period would commence or end, and that the discussion was general in nature, not concerned with the "nuts and bolts or nitty gritty". I note further that Mr Leahy's account does not support the notion that there was discussion about the option period running throughout the lease period. Neither does Mrs Carbone's account as contained in her affidavit. Mrs Carbone did give evidence in the witness box that there was discussion about a four year lease "with an option to buy at the end", but I am not satisfied that those words were said. They are not supported by any other witness. Again, I do not think that there was any specific discussion directed to the period during which the option would be able to be exercised. In relation to the later meeting, I accept Mr Mills' denial that Mr Carbone said "during which time we will also have an Option to Purchase the property".
25. It is likely, however, that there was a conversation after 10 August 2012 in which Mr Mills agreed to an option period of 4 years. Mr Mills recalled a conversation to that effect, and Mr Carbone agreed that Mr Mills said words to that effect.
26. It seems to me therefore that there was discussion about a four year lease, to which Mr Mills agreed, and there was also later discussion about a four year option period, to which Mr Mills agreed. It further seems that the sale of the plaintiffs' property in Western Australia was to have an effect of some sort upon when the option might be exercised. I note that Mr Leahy recalls something said by Mr Mills on 10 August 2012 about the option being exercised when the Western Australian property was sold.
27. Having considered the evidence, I am not persuaded that there was any discussion in August 2012 to the effect that the periods of the lease and the option would exactly coincide (so as to make them contemporaneous). Further, I do not accept that in the course of any of the conversations in August 2012 the parties reached any consensus to the effect that the plaintiffs would have an option to purchase throughout the duration of the lease, or that they would have an option period of four years commencing when they went into possession of the property. I do not think that Mr Carbone and Mr Mills descended to that level of detail in the conversations.
28. Had the parties turned their minds to the question, they may well have thought that the four year periods of the lease and the option would or should coincide, but the question was not the subject of discussion, and the parties did not reach any agreement about it. That is not at all surprising in circumstances where the parties plainly contemplated from at least 10 August 2012 that formal documents would be settled and entered into, and each party had retained a solicitor to act for them in the transaction.

Oral terms

1. The findings I have made about the conversations in August 2012 are sufficient to dispose of the plaintiffs' contention that the Option Agreement contained oral terms to the effect that the plaintiffs would have a four year lease of the Property commencing from when they took possession, and an option to purchase throughout that four year term of the lease.
2. It is not necessary to consider the defendant's contention that in any event the Court should not find that the parties agreed to oral terms in addition to the apparently complete written agreement, particularly where the alleged oral terms are inconsistent with the terms of the later written agreement (see Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234 at [90]; Schwartz v Hadid [2013] NSWCA 89 at [44]-[48]). I would observe, however, that this contention appears to me to be well founded.
3. Neither is it necessary to consider the defendant's further contentions that in any event the alleged oral terms would be ineffective to create or dispose of any interest in the land, and could not be enforced, due to a lack of writing.

Construction of the Option Agreement

1. The evidence of surrounding circumstances relied upon by the plaintiffs on the question of construction essentially consists of evidence as to the content of the parties' negotiations. Whilst such evidence can establish objective background facts known to both parties, and thus assist the task of construction, the position is different to the extent that it consists of statements or actions that are reflective of the actual intentions and expectations of the parties (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J). As explained in that case by Mason J: …such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
2. The plaintiffs did not identify any objective facts established by the evidence of the negotiations, or suggest how any such facts could be used in construing the Option Agreement. The plaintiffs rather sought to use the evidence of the negotiations to establish the existence of a "commercial objective" to provide a four year Call Option period that would run concurrently with a lease of the Property. In my view that is in truth an impermissible attempt to use evidence of negotiations to establish the contractual intentions of the parties, and then rely on those intentions on the question of construction.
3. In any case, on the findings I have made concerning the conversations in August 2012, no such commercial objective was established.
4. The question of construction concerns the period within which the Call Option might be exercised by the plaintiffs. Clause 4.1 makes it clear that the Call Option may be exercised by the Purchaser at any time from the Call Option Commencement Date to before 5:00pm on the Call Option Lapse Date. Those concepts are defined in cl 1.1(2), where second appearing, and cl 1.1(3), respectively.
5. The Call Option Commencement Date is the date the Other Option referred to in cl 24 is terminated by the Vendor. That occurred on 4 September 2012.
6. The Call Option Lapse Date is the date that is 4 calendar years from "the date of this Agreement". "Agreement" is in turn defined as "this document, including any schedule or annexure to it". In my opinion, "the date of this Agreement" is 4 September 2012, being the date that appears at the top of the first page of the document as the date that the Agreement was made. The document is not otherwise dated in any fashion. On that basis, the Call Option Lapse Date is 4 September 2016.
7. It would follow that the Call Option could be exercised by the plaintiffs in the period from 4 September 2012 to before 5:00pm on 4 September 2016.
8. The plaintiffs submitted that there was ambiguity in the definition of Call Option Lapse Date arising from the provisions concerning payment of the Premium and the giving of possession (cll 2, 8 and 11) and the provisions concerning the conditionality of the Agreement (cll 20 and 24). As I understood the submission, it was to the effect that: 1. as the Call Option was granted in consideration of the payment of the Premium; 2. as the Premium was not required to be paid until 24 September 2012; 3. as possession was not required to be given until the later of the date of the Agreement and the date the Premium was paid; 4. as the Agreement was subject to the conditions contained in cll 20.1 and 24.3; and 5. as it would make no sense for occupation fees to be payable by reference to a period before the plaintiffs took possession of the Property, "the date of this Agreement" in the definition of Call Option Lapse Date should be read as the date the plaintiffs took possession of the Property.
9. I do not accept those submissions. I see no good reason to depart from what I regard as the clear meaning of the words "the date of this Agreement" in the definition of Call Option Lapse Date. It is true that the Premium was not required to be paid until 24 September 2012, but on entry into the Option Agreement the plaintiffs became bound (by cl 8.1) to pay the Premium by no later than that date. It is also true that possession might not be given until the Premium was paid. However, that is expressly contemplated by cl 11.1, and cl 11.3 provides for an occupation fee calculated on a per annum basis, albeit that payment dates are referable to "the date of this Agreement". Further, I do not think that the conditions referred to in cll 20.1 and 24.3 have any bearing upon the meaning to be given to the expression "the date of this Agreement". Construing that expression to mean 4 September 2012, wherever the expression appears in the Option Agreement, does not in my view lead to any absurdity and does not undermine the evident commercial purpose of providing the plaintiffs with an option to purchase the Property together with certain rights of possession.
10. In my opinion, reasonable businesspersons in the position of the plaintiffs and the defendant would have understood the expression "the date of this Agreement" to mean the date shown on its front page, namely, 4 September 2012.
11. Before leaving this topic I note that the plaintiffs also submitted that as there was ambiguity present it was open to the Court to have regard to the parties' post-contractual conduct in construing the Agreement. I do not accept that submission, which appears to be based on a misunderstanding of Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68, Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 and Lennon v Scarlett & Co (1921) 29 CLR 499. As stated by Heydon JA (as his Honour then was) in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]-[26], post-contractual conduct is admissible on the question of whether a contract was formed, but is not admissible on the question of what a contract means. More recently, in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 Gummow, Hayne and Kiefel JJ referred at [35] to the general principle that it is not legitimate to use as an aid in the construction of a contract anything which the parties said or did after it was made (see also Heydon J at [163], where his Honour accepted the existence of the principle but considered that the respondent's argument did not infringe it).

Rectification

1. Rectification is sought in the alternative to the cases concerning the existence of oral terms, and the proper construction of the agreement.
2. The plaintiffs' primary argument for rectification is that the parties had a common intention, not reflected in the written Option Agreement, that the Call Option would be able to be exercised during a four year period commencing when the Other Option was terminated, or when the plaintiffs took possession of the Property, whichever was the later.
3. For the purposes of rectification, a common intention is a subjective (sometimes called actual) intention, rather than an objectively ascertained intention (see Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 at [262] and [267]-[268]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [42] per Kiefel J, as her Honour then was). It is well established that in order to make out this type of case, it is incumbent upon the plaintiffs to establish, by clear and convincing proof, the existence of the common intention and that it continued in existence up to the time of execution of the instrument sought to be rectified (see, for example, Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 345; Simic v New South Wales Land and Housing Corporation (supra) at [41] per Kiefel J, as her Honour then was). It is not necessary to further show that an antecedent concluded contract was made (see Ryledar Pty Ltd v Euphoric Pty Ltd (supra) at [259]).
4. In the joint judgment in Simic v New South Wales Land and Housing Corporation (supra), their Honours stated at [103]-[104]: 103 Rectification is an equitable remedy, the purpose of which is to make a written instrument "conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately". For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an "agreement" between the parties in the sense that the parties had a "common intention", and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the "agreement" because of a common mistake. Unless those elements are established, the "hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties" cannot be displaced. 104 The issue may be approached by asking - what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.
5. The plaintiffs essentially rely upon the terms of the conversations in August 2012 in order to establish the existence of the alleged common intention.
6. The plaintiffs also refer to the draft option agreement (sent by Mr Cowley to Mr Wilson on 24 August 2012) which provided: 1. for the Call Option to commence on the date of the Agreement and lapse 4 calendar years from that date; and 2. for the Premium to be paid on or before the date of the Agreement, and possession of the Property to be given to the plaintiffs from the later of the date the Premium is paid and the date of the Agreement.
7. The plaintiffs noted that the draft agreement provided for both the Call Option period and the lease to commence on the date of the Agreement. The plaintiffs further noted that the dates for payment of the occupation fee were set by reference to the date of the Agreement.
8. The plaintiffs noted that there were various changes made to the draft agreement, including to the definition of Call Option Commencement Date, and various handwritten amendments shortly prior to the execution of the Option Agreement. It was suggested that the amendment to the definition of Call Option Commencement Date, and the failure to make a "consequential change" to the definition of Call Option Lapse Date, was to shorten the Call Option Period to less than four years, contrary to the common intention of the parties as discussed in August 2012. It was put that any disconformity between the common intention and the legal effect of the Option Agreement was clearly due to a drafting error which went undiscovered.
9. I do not think that the evidence concerning the August 2012 conversations establishes the existence of the alleged common intention. As I have found, there was no discussion to the effect that the option for purchase would exist throughout the duration of the lease, and there was no specific discussion about when the option period would commence or end. The affidavit evidence is silent as to any discussion about the termination of the existing option, let alone discussion about the effect that the event might have upon the commencement of the option period. I have found that there was discussion about a four year lease, and a later discussion about a four year option, but have not accepted there was any discussion or agreement to the effect that those periods would exactly coincide, or that the plaintiffs would have a four year option period commencing when they went into possession.
10. Viewing the evidence objectively, I am unable to conclude that Mr Carbone and Mr Mills actually held an intention to that effect. At most, they made it known to each other that there would be a four year option period. The evidence falls well short of establishing the existence of the common intention contended for by the plaintiffs. The plaintiffs have not established that, by reason of a common mistake, the Option Agreement fails to reflect the alleged common intenion.
11. Even assuming that Mr Carbone held such an intention arising from his discussions with Mr Mills in August 2012, the intention has not been shown to have continued up to the time of execution of the Option Agreement. Mr Carbone read the draft agreements sent to him by Mr Wilson on 24 August 2012. He gave evidence in cross-examination that having read the draft option agreement he was satisfied that the proposed term of the lease was four years "because the option agreement was for four years". Mr Carbone agreed that he had read the definition of Call Option Lapse Date in the draft. It is likely that he also read the definition of Call Option Commencement Date in the draft, and thereby satisfied himself that the option period would be four years from the date of the agreement. Of course, the definition of Call Option Commencement Date says nothing about the commencement being affected by the lease or going into possession of the Property.
12. On 30 August 2012 Mr Carbone and Mr Wilson discussed the definition in the draft of Call Option Commencement Date. It appears that Mr Wilson thought that the definition should be changed so that it referred to the date the existing option agreement was terminated. Despite the fact that Mr Wilson does not recall taking Mr Carbone to the definition in the draft of Call Option Lapse Date, it is likely that the definition was mentioned as part of a discussion about the option period. Mr Carbone agreed that he and Mr Wilson went through the draft paragraph by paragraph, including cl 1.1 (which contains the definitions).
13. Based on his earlier reading of the draft, and his discussion with Mr Wilson, Mr Carbone would have understood that the call option period would end four years from the date of the Agreement. He would also have understood that if the definition of Call Option Commencement Date was amended to refer to the date of termination of the other option, the call option period might commence sometime after the date of the Agreement, and hence be less than four years. Mr Wilson sought that amendment, and I infer that Mr Carbone gave him instructions to do so. In these circumstances, whatever subjective intention Mr Carbone had as a result of his discussions with Mr Mills, I cannot accept that by 30 August 2012 Mr Carbone held an intention that the call option period would be a four year period commencing when the other option was terminated, or when the plaintiffs took possession of the Property, whichever was the later. In this regard I note that Mr Wilson accepted in cross-examination that Mr Carbone did not give him instructions on 30 August 2012 to the effect that commencement of the option was connected with the date of occupation of the Property. Mr Carbone, despite initially suggesting in cross-examination that he told Mr Wilson that it was agreed that the option would not commence until possession was taken, then seemed to concede that he did not have such a discussion with Mr Wilson. I find that Mr Carbone did not say anything to Mr Wilson about the option period not commencing until the plaintiffs took possession. I do not accept Mr Carbone's evidence that he did not turn his attention to the definition of Call Option Lapse Date, and that if he had, he would have instructed Mr Wilson to change it so it provided for four years from the date possession of Wolonga was taken.
14. It should be noted that Mrs Carbone did not give any evidence as to her intentions at any relevant time. Neither did she give evidence to the effect that she left all matters of decision to her husband.
15. As for Mr Mills, having accepted his evidence that there was no specific discussion about when the option period would commence or end, and having concluded that there was no discussion or agreement to the effect that the period of the lease and the option would exactly coincide, or that the plaintiffs would have a four year option period commencing when they went into possession, I find that at no stage did Mr Mills have the intention alleged to be shared between the parties.
16. The plaintiffs' secondary argument for rectification is that the plaintiffs held that intention but the defendant, knowing that they held that intention, remained silent and thereby allowed the plaintiffs to enter into the Option Agreement under a mistake as to its effect. It was submitted that in the circumstances it would be unconscionable for the defendant to resist rectification and to rely upon the (unrectified) terms of the Option Agreement.
17. The argument cannot be sustained. Mr Carbone did not have the relevant intention (at least from 30 August 2012) and Mrs Carbone did not give evidence as to her intentions. Further, it was not put to Mr Mills that he was aware of the plaintiffs' intentions, and that he stood by and allowed them to enter into the Option Agreement under a mistake as to its effect.
18. The plaintiffs' claims for rectification have not been made out.

Events following entry into the Option Agreement on 4 September 2012

1. On 4 September 2012, after exchange of the Option Agreement and the Taringa sale contract, Mr Cowley gave notice to Mr Wilson that the Other Option, referred to in cl 24.3 of the Option Agreement, had been terminated. The Option Agreement was relevantly unconditional from that time, as both conditions referred to in cll 20.1 and 24.3 had been satisfied.
2. On 6 September 2012 Mr Wilson notified Mr Cowley that the plaintiffs had obtained satisfactory finance and that the condition to that effect in the Taringa sale contract had thus been satisfied.
3. At about that time Mr Mills had a conversation with Mr Carbone in which Mr Carbone said that he wanted to get onto the properties to plant a sorghum crop in the fallow fields as soon as possible, and by 15 September 2012 at the latest. Mr Leahy also conveyed to Mr Mills that Mr Carbone was keen to have possession.
4. Also at about that time Johnchap Pty Ltd lodged caveats on the titles to Taringa and Wolonga, claiming interests under a contract for sale and an option agreement respectively. The caveats were lodged notwithstanding the termination of those agreements by Mr Mills on 4 September 2012.
5. Mr Mills was evidently concerned that the caveats might affect his ability to complete the Taringa sale and give possession of the properties to the Carbones. Mr Mills spoke to Mr Leahy and said words to the effect that Mr Carbone could not have possession because a caveat had been lodged and "until it is removed we cannot let him onto the property". There seems to have been more than one conversation to that effect. Mr Mills also spoke to Mr Carbone, telling him that he (Mr Mills) would need to get the caveats removed before Mr Carbone could come onto the farm. Mr Carbone deposed that this conversation took place around 24 September 2012, but I prefer Mr Mills' evidence that it occurred sometime between 6 September 2012 and 14 September 2012.
6. Mr Carbone was also informed by Mr Leahy that he would not be able to take possession of the properties until the caveats had been removed. In addition, Mr Leahy told Mr Carbone that he would be foolish to plant a crop while a caveat was still on the property.
7. On 12 September 2012 Mr Mills commenced proceedings in this Court against Johnchap Pty Ltd seeking declarations that the agreements had been validly terminated, and orders for the removal of the caveats. In the course of communications between the respective solicitors acting in the litigation, Mr Cowley sent an email to the solicitor for Johnchap Pty Ltd on 14 September 2012 which included the following: I have sought instructions from my client in relation to your attached email, but it is not likely that our client will be prepared to respond without substantiation of costs/value. … I suggest that a way forward so as to reduce any possible damages claim against your client, would be for your client to undertake to allow our client or their nominee full and unimpeded access to the Properties to prepare and plant a crop on the fallow cultivation. If this were provided on Monday, this may assist in progressing the matter. I interpolate that Mr Mills' Summons was returnable on the following Monday.
8. The solicitor for Johnchap Pty Ltd promptly responded to Mr Cowley by email in the following terms: My client is collating the costs/value material and should have same completed by Monday. In the interim, Mr Lomas is happy to allow your client or his nominee immediate, full and unimpeded access to the Properties to prepare and plant a crop on the fallow cultivation. Mr Lomas was the principal behind Johnchap Pty Ltd.
9. Mr Mills deposed that on about 14 September 2012 he had a conversation with Mr Carbone to the following effect: Mr Mills: Doug Lomas has agreed that you can go on to the farm and plant your crop even though the caveats haven't been removed yet. Mr Carbone: But what if the caveats aren't removed and I've already done the planting? I'll have done the work for nothing. If that happens, I want to get paid for the work I've done at contract rates. Mr Mills: Contract rates have a high profit percentage in them. If I can't get the caveats lifted then I will pay you the cost of planting at 75% of contract rates. Mr Carbone: Okay. I'm going to get started then.
10. In his affidavit in response, Mr Carbone stated that he agreed with the first part of that conversation but was unable to say when the conversation took place. He deposed that he told Mr Mills that he would consider the matter after he had spoken to his solicitor. In cross-examination, Mr Carbone initially denied that Mr Mills had told him that Mr Lomas had agreed he could go on to the farm and plant a crop. However, when confronted with his affidavit, Mr Carbone accepted that Mr Mills had given him that information. Mr Carbone also maintained that the conversation occurred on 19 September 2012, and that he was in no doubt about that date.
11. In any event, it seems that Mr Carbone, after discussing the matter with Mr Wilson, decided that he did not want to take the risk of planting a crop whilst there were caveats on the titles. Mr Leahy gave evidence that even after 14 September 2012 he continued to advise Mr Carbone not to plant any crop on the properties until the caveat had been removed. In cross-examination, Mr Leahy agreed that he had been made aware of the caveats by Mr Mills prior to 14 September 2012, and that he would have called Mr Carbone "as soon as I found out there was a caveat on". I think that is likely to have occurred.
12. I am satisfied that by 14 September 2012 Mr Carbone was aware of the existence of the caveats, having been told about them by both Mr Mills and Mr Leahy. I am further satisfied that by no later than 19 September 2012 Mr Carbone was aware that an agreement had been reached with the caveator whereby unimpeded access to the properties to prepare and plant a crop on the fallow cultivation would be given to the Carbones. Of course, under the terms of the Option Agreement, the Carbones had no right to possession of Wolonga until the Premium was paid. I note further that the Taringa sale contract contained no provisions concerning the giving of possession prior to completion.
13. The Premium was due to be paid by 24 September 2012. The Carbones had difficulties in obtaining the necessary funds, and sought an extension to the following day. The Premium was in fact paid on 26 September 2012. The Carbones instructed Mr Wilson that the funds could be released to Mr Mills even though his proceedings concerning the removal of the caveats had not been finalised.
14. Withdrawal of caveat forms were executed on behalf of Johnchap Pty Ltd on 28 September 2012. Mr Carbone deposed that those forms were provided to his solicitors on 3 October 2012, shortly prior to the settlement of the Taringa sale contract on 4 October 2012.
15. In order to facilitate completion of that contract, Mr Mills agreed to provide vendor finance in the sum of $386,967 (a sum which coincides with the amount of the Premium paid under the Option Agreement). A Facility Agreement was entered into for this purpose on 2 October 2012. The Facility Agreement provided for the loan amount to be repayable in full to Mr Mills on 28 February 2013.
16. The parties are at odds as to when the Carbones actually went into possession of Wolonga. The Carbones maintain that this occurred on 7 October 2012, following settlement of the Taringa sale contract and the removal of the caveats. Mr Mills maintains that the Carbones actually moved into the homestead on Wolonga in the days following 24 September 2012 (when Mr Mills and his wife moved out to a property they had purchased in Boggabilla). It is not necessary to resolve this dispute. Occupation of the homestead by the Carbones was not provided for in the Option Agreement. The possession granted was only for the purpose of farming and grazing, and did not extend to the homestead for at least a six month period.
17. The plaintiffs did not repay the vendor finance on 28 February 2013. Neither did the plaintiffs pay the occupation fee of $150,000 on 4 March 2013 as required by cl 11.3 of the Option Agreement.
18. Mr Mills spoke to Mr Carbone on about 3 April 2013. Mr Mills deposed that there was a conversation to the following effect: Mr Carbone: We've had a bad drought in Western Australia. We've achieved much less than we were budgeting for our crops. I can pay some of the vendor finance now, but I would like to roll-over $200,000 for another year. Mr Mills: Okay, I will give you a year to pay the remaining $200,000, but you will need to pay default interest on it of 10%. Mr Carbone: Okay, thanks. I'll be able to pay this Friday. I'll pay the rent then too. Mr Mills: Okay, but you have to pay interest on the rent from 26 March. Mr Carbone: Yes, Okay.
19. Mr Carbone, in his affidavit in response, agreed that a conversation to that effect occurred, save that he says that he used the word "lease" rather than "rent".
20. No payments were made as promised. On about 16 April 2013 Mr Mills spoke to his solicitors (now Hicksons) and requested that they prepare payment figures. These were provided to Mr Mills who then forwarded them to Mr Carbone on 16 April 2013. At about the same time, Mr Mills agreed with Mr Carbone that he could pay half of the occupation fee now, with the other half to be paid later, with interest. Hicksons were asked to prepare amended payment figures accordingly. These were provided to Mr Mills, who forwarded them to Mr Carbone on 17 April 2013.
21. On about 17 April 2013 there was a further conversation between Mr Mills and Mr Carbone. Mr Carbone deposed that the conversation was as follows: 36 … Mr Carbone: John, the interest rate that you have used is 15%. We have to be a bit more realistic because its 10% above the market rate. Mr Mills: No, that's why the interest is in there. It is to make sure that you have always got the money. Mr Carbone: The reason I have not got the money is because of an unforseen and uncontrollable drought event. This should be taken into account. Mr Mills: No, that's what it is and that's what you have to pay. Mr Carbone: The solicitors have also calculated default interest from 26 March. It has to be calculated from 4 April because that is when the payment was due. Mr Mills: Yeah, that's what I thought also. However when I queried them they told me it is calculated as per the agreement. Mr Carbone: No no. We took possession of the property on 4 October and 6 months' from then is 4 April. I can't pay the lease when I did not have possession. Mr Mills: Yeah, you're right. The lease payments will run from 4 April to 4 October each year. 37 At some time during the conversation the following was also said: Mr Carbone: As we settled "Taringa" on 4 October the option agreement for "Wolonga" becomes active from 4 October also. Mr Mills: Yeah, you are right Sam. That's when everything happened and we got the caveat lifted.
22. Mr Mills agreed that a conversation occurred which included what is set out in the first eight lines of paragraph 36 in Mr Carbone's account. Mr Mills denied any conversation to the effect of that set out in the balance of paragraph 36. Mr Mills also denied that there was any conversation to the effect of that set out in paragraph 37.
23. It appears that on 17 April 2013 the plaintiffs made a payment in respect of half of the outstanding occupation fee, as discussed.
24. Mr Mills deposed that at some later time in 2013 (possibly September) he had a conversation with Mr Carbone which included words to the following effect: Mr Carbone: We settled Taringa on 4 October. That's when the rent should be paid from. 4 October and 4 April each year. That's when I'm going to make the rent payments. Mr Mills: Okay.
25. Mr Carbone did not respond to this part of Mr Mills' affidavit.
26. On 10 December 2013 Mr Mills sent an email to Mr Carbone which attached a payment schedule he had prepared. The schedule is in form of a spreadsheet. There are dates shown in the left hand column. These are 4 October 2012, 4 April 2013, 4 October 2013, 4 April 2014, 4 October 2014, 4 April 2015 and 4 October 2015. In the adjacent column there appears, next to each date apart from 4 October 2015, a reference to a "lease payment". In the column adjacent to 4 October 2015 there is a reference to "Settlement" and "$3,869,670 less dep. $386,967". That is clearly a reference to the money that would be paid upon settlement of the sale of Wolonga if either the Call Option or the Put Option was exercised.
27. Mr Mills deposed that he used dates of 4 October and 4 April in the left hand column of his payment schedule as a result of his earlier discussion with Mr Carbone about dates for payments of rent.
28. Mr Mills subsequently sent emails to Mr Carbone which indicate that those payments were due on 4 April and 4 October each year. One such email was sent on 4 April 2014. Others were sent in September 2014 and April 2016.
29. Mr Carbone deposed that on 4 April 2016 there was a conversation to the following effect: Mr Carbone: The Western Australian property is about to settle soon. As there is no point in paying for the full six months rent how about I pay on a monthly basis? Mr Mills: No, I've budgeted on that money. Mr Carbone: Well if I have to pay the money and then you have to refund me you should pay interest on the amount that you refund. Mr Mills: No, I'm not going to pay you any interest. Mr Carbone: Well so I shouldn't have to pay the full amount. How about we just pay three months. Mr Mills: Yeah you could but we could just give you a refund at the end.
30. Mr Mills denies that such a conversation occurred. He says, however, that a conversation to the following effect took place: Mr Carbone: I don't want to pay the occupation fee because the Salmon Gums sale is imminent and therefore the purchase of Wolonga is not too far away. You will be paid out around the end of May. Mr Mills: You have to pay as per the contract, I have already earmarked the payment to pay my capital gains bill. Mr Carbone: You shouldn't spend money you don't have. Ha, I should talk. Anyway, it's common practice to short pay at the end. We can sort it out at settlement. Mr Mills: No, you have to pay the full amount as per the contract. I really need the payment. Mr Carbone: Why should I have to pay six months if the sale is going to be done in two months? I will have to borrow the funds to pay. I'll pay six months if you pay the interest on the borrowings. Mr Mills: No, I'm not paying the interest. Mr Carbone: What if I pay three months? Mr Mills: No. If the Western Australia sale goes through and you buy the property then I will credit you the unused payment on a pro-rata basis.
31. Mr Carbone sent an email to Mr Mills on 4 April 2016 in the following terms: Just confirming as discussed 5 minutes ago I will be paying 3 months as agreed.
32. Mr Mills responded by email on the following day in these terms: Sorry for any misunderstanding, but I am not budging on your contractual commitments. As explained earlier I have committed that money in my budget. So currently, the 6 months lease is overdue. If you do sell your place in WA prior to the final settlement, adjustments will be made at that time.
33. There was a further discussion between Mr Mills and Mr Carbone in August 2016. According to Mr Carbone the conversation was the following effect: Mr Mills: How's your WA sale going? Mr Carbone: It's all progressing well and should be finalising soon. Mr Mills: That's good I'll get my money 30 days after that. Mr Carbone: Well it may not be exactly 30 days afterwards. Maybe a little bit before or after. But you will definitely get your money. I am not going to do what your so called mates have done in the past and leave you with nothing. You will get your money. Mr Mills: That's good. I need that money.
34. According to Mr Mills, who denied Mr Carbone's version, the conversation was to the following effect: Mr Mills: How's your Western Australia sale going? Mr Carbone: It's gone through. It was sorted in early August. Mr Mills: Good, that means I'll get paid 30 days from then. Mr Carbone: It will take longer, because you know how banks are. Mr Mills: Well, 30 days is about the same as the end date.
35. Mr Carbone denied that Mr Mills had said: Well, 30 days is about the same as the end date.
36. As noted earlier, the Call Option was not exercised by 4 September 2016. On 14 September 2016 the defendant served a Notice to Vacate. It was stated in the covering letter that the Call Option had not been exercised by the Call Option Lapse Date.
37. On 21 September 2016 the plaintiffs' solicitors sent a letter to the defendant's solicitors suggesting that a "without prejudice" meeting be held. On 22 September 2016 the defendant's solicitors sent a letter in reply which included the following: We refer to your letter dated 21 September 2016, in which you informed us that your clients request a "without prejudice" meeting with our client. That request suggests that your clients intend to raise some issue relating to our client's Notice to Vacate issued to your clients on 14 September 2016. So that we can obtain instructions in response to your clients' request from our client, please inform us what matters your client wishes to discuss at the proposed meeting.
38. On 23 September 2016 the plaintiffs' solicitors sent a letter to the defendant's solicitors marked "without prejudice". The letter was admitted into evidence without objection. The letter included the following: We refer to your letter of 22 September 2016 and advise that our client does not accept that the Option Agreement expired on 4 September 2012. Though the Option Agreement dated 4 September 2012 provides that it is to lapse 4 calendar years from the date of the Agreement we submit that the parties clearly understood the lapse date as being 4 October 2016 being four years from the date our client took possession of "Wolonga".
39. On 28 September 2016 the plaintiffs served a Notice of Exercise of Call Option.
40. Between 14 September 2016 and 28 September 2016 Mr Carbone had several conversations, and meetings, with Mr Wilson. At least two of the meetings were attended by Mrs Carbone also. During that period Mr Carbone intensified his efforts to obtain finance in order to purchase Wolonga.
41. The plaintiffs' claim that the Option Agreement was varied, and their various estoppel claims, rest largely although not entirely upon Mr Carbone's version of his conversation with Mr Mills on about 17 April 2013. It is alleged that in the course of that conversation there was an agreement to the effect that, whatever else had been agreed previously, the Call Option would not lapse until 4 October 2016. It is further alleged that in the course of the conversation Mr Mills represented that the Call Option period commenced on 4 October 2012 and would continue until 4 October 2016, and that the parties henceforth proceeded on the basis of a mutually held assumption to the same effect.
42. It is common ground that there was a conversation on about 17 April 2013 in which payment of the outstanding occupation fee was discussed, including the interest that would need to be paid. It is also common ground that there was a discussion at some stage in 2013 during which Mr Carbone stated, and Mr Mills agreed, that the "lease payments" or "rent payments" should be calculated from 4 October 2012 and paid on 4 April and 4 October of each year. It is likely that this was discussed in April 2013, as recalled by Mr Carbone, when the question of payment first arose. Mr Mills made some concessions in cross-examination to the effect that a discussion of that nature may have occurred in April 2013.
43. There is some divergence as to the stated rationale for that payment regime. Mr Carbone recalls that it was based on when possession of the Property was taken; Mr Mills recalls that it was based on when the sale of Taringa settled. I do not think much turns on this divergence, but consider that it is likely that something was said about the settlement of the Taringa contract, which occurred on 4 October 2012. Whilst the plaintiffs assert that they did not actually go into possession of Wolonga until 7 October 2012, Mr Carbone gave some answers in cross-examination which suggest that he thought that possession of Wolonga was tied in some way to possession of Taringa.
44. The most significant divergence between the accounts of the April 2013 conversation concerns whether there was also a discussion about when the Option Agreement itself became "active" (or "effective", as referred to by Mr Carbone in cross-examination). According to Mr Carbone, he told Mr Mills that as the Taringa sale settled on 4 October 2012 the Option Agreement "becomes active from 4 October 2012 also", and Mr Mills agreed to this, saying "you are right Sam. That's when everything happened and we got the caveat lifted". Mr Mills denied that such a conversation occurred. He maintained in cross-examination that he had no recollection of ever discussing the option itself, as opposed to the payments due under the Option Agreement. He stated that "we weren't discussing the option at all" and "at no stage did I agree to change the option date from the beginning of September".
45. I have considered the evidence about the April 2013 conversation in the light of what had earlier occurred between the parties, including their discussions in August 2012, their entry into the Option Agreement on 4 September 2012, and the circumstances leading up to the plaintiffs obtaining possession of the properties. I am not prepared to accept Mr Carbone's evidence that there was a discussion in April 2013 about when the Option Agreement became "active" or "effective", and that Mr Mills agreed that this event occurred on 4 October 2012. The likelihood is that the discussion was concerned only with payments of the occupation fee, in particular the calculation of the fees and the timing of payments. That was the issue at hand. I accept Mr Mills' denial that there was any discussion about the option itself. There was no issue at that time about the exercise of the option, or the period within which the option could be exercised.
46. I am not convinced that Mr Carbone's claimed recollection of the conversation is accurate insofar as he says there was discussion about the Option Agreement becoming "active" or "effective". As mentioned earlier, it is difficult to have much confidence in the accuracy of this testimony, and the reliability of Mr Carbone's testimony was shown to be questionable, even where he professed to have a clear recollection of what was said. I have considerably more confidence in Mr Mills' denials concerning the content of his discussions with Mr Carbone.
47. Moreover, it is telling that after Mr Mills served the Notice to Vacate on 14 September 2016, Mr Carbone did not promptly and clearly inform Mr Wilson of the existence of a verbal agreement reached with Mr Mills that the Option Agreement became active or effective on 4 October 2012 and that the Call Option was thus open for exercise until 4 October 2016. Mr Wilson's filenotes of his conversations with Mr Carbone in September 2016 contain no record of Mr Carbone giving him instructions to that effect. Mr Wilson agreed in cross-examination that he took care to write down instructions given by Mr Carbone about factual matters, so if Mr Carbone had clearly referred to a verbal agreement with Mr Mills, it is very likely that Mr Wilson would have recorded it. It appears that Mr Wilson saw Mr and Mrs Carbone in his office (for about eighty minutes) on 14 September 2016. Mr Wilson was asked directly whether Mr Carbone told him on 14 September 2016 of an oral agreement that the option date was some later date. Mr Wilson could say only that Mr Carbone had "always maintained that he was entitled to exercise the option from 4 October".
48. I am unable to accept Mr Carbone's evidence that he spoke to Mr Wilson on the telephone on 14 September 2016 about an agreement with Mr Mills that the option would not lapse until 4 October 2016. It seems that no note was made of any telephone conversation on that day. However, it is unlikely that Mr Carbone would have spoken about an agreement on the telephone, but not at the meeting held later that day. Mr Wilson's note of the meeting held with Mr and Mrs Carbone later on 14 September 2016 contains a reference to "4/10/16". However, it is apparent from the note that this refers, not to any asserted agreement, but to the date Mr and Mrs Carbone "were paid up to" in respect of the occupation fee.
49. Having regard to Mr Wilson's evidence, and the content of the "without prejudice" letter he sent on 23 September 2016, I accept that Mr Carbone told Mr Wilson on 14 September 2016 as well as on later occasions that he believed the option period extended to 4 October 2016. However, I do not think that Mr Carbone said that this belief was due to there being an agreement to that effect, reached in discussions with Mr Mills in April 2013. In this regard, I note that Mr Carbone said in cross-examination that he told Mr Wilson that "as far as I know and as far as the option agreement goes the option agreement expires on 4 October 2016". This evidence, taken with various other answers given by Mr Carbone in cross-examination, tends to suggest that he had a belief that, "due to the events of 2012", the Option Agreement operated so that the option period went from 4 October 2012 to 4 October 2016.
50. The documentary evidence does not provide support for the existence of the asserted agreement made in April 2013. The emails that later passed between the parties are plainly concerned with the payment of occupation fees. They do not in terms touch upon the Call Option itself, let alone the period within which the option was open to be exercised. I have not overlooked the fact that the payment schedule sent by Mr Mills to Mr Carbone on 10 December 2013 includes a reference to "Settlement" next to the date 4 October 2015. That may be taken to be a reference to a settlement of the purchase of Wolonga following an exercise of either the Call Option or the Put Option. The plaintiffs submitted that the date 4 October 2015 in the payment schedule was an erroneous reference to 4 October 2016. However, even if the date 4 October 2015 is treated as an error, intended to be 4 October 2016, a reference to settlement at that date does not in my view indicate that the Call Option can be exercised at any time up to that date.
51. Mr Mills explained in cross-examination that the error was including the words "Settlement" on the same line as 4 October 2015 rather than "a line or two below" on the spreadsheet. I accept Mr Mills' evidence on this matter, including his evidence as to why he prepared the spreadsheet, and why he later sent it to Mr Carbone. I further accept that he used the dates 4 April and 4 October as a result of his earlier discussion with Mr Carbone about dates for payments of rent, albeit that it is likely that this discussion took place in April 2013, rather than September 2013 as stated by Mr Mills in his affidavit.

Variation of the Option Agreement

1. The findings set out above mean that the plaintiffs' claim that the Option Agreement was varied must fail. There was no agreement reached in April 2013 to the effect that whatever else had been agreed previously, the Call Option would not lapse until 4 October 2016.
2. Even if I had found that the conversation on about 17 April 2013 was to the effect of the version advanced by Mr Carbone, I would have difficulty finding an agreement as alleged. The notions of the Option Agreement becoming "active" or "effective" are somewhat vague, and when spoken of in the context of a discussion about the making of payments of occupation fees, do not plainly refer to the commencement of the Call Option period, let alone that the Call Option period would continue for four years from that time.
3. It is not necessary to consider the defendant's contention that in any event there was no effective variation of the Option Agreement because the alleged variation was not in writing. It is clear, however, that where a contract provides for the grant of an option to purchase real property, an interest in land is thereby conferred upon the grantee (see Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75-6; Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99 at [95], [97] and [102]). In my opinion, such a contract is a contract for the sale or other disposition of an interest in land within the meaning of s 54A of the Conveyancing Act (see Khoury v Khouri (2006) 66 NSWLR; [2006] NSWCA 184 at [4]-[6] and [50]). Accordingly, the contract is one that is required to be in writing in order to be enforceable. It is also clear that a variation of an agreement that is required to be in writing is itself required to be in writing in order to enable the contract as varied to be enforced (see Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 at 243-4; Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 113 and 122-3; Agricultural and Rural Finance Pty Ltd v Gardiner (supra) at [74], cited in Adicho v Dankeith Homes Pty Ltd [2012] NSWCA 316 at [29]). It therefore seems to be the case that the alleged variation, which is not recorded in any writing, would not be enforceable unless the plaintiffs' were able to establish that the doctrine of part performance operated (see s 54A(2)).
4. The plaintiffs suggested that the alleged variation was supported by sufficient acts of part performance. Had it been necessary to do so, I would not have accepted that submission. In my opinion, there were no acts done by the plaintiffs that were permitted to be done by the defendant and which could be said to be unequivocally and in their nature referable to a contract of the nature of that alleged (see McBride v Sandland (1918) 25 CLR 69 at 78-9; Khoury v Khouri (supra) at [80]).
5. I do not think that s 23C(1)(a) of the Conveyancing Act is engaged where a contract provides for the grant of an option to purchase real property (see Baloglow v Konstantinidis [2001] NSWCA 451 at [161] and [188]-[191]; Khoury v Khouri (supra) at [53]). It therefore seems to me that the further suggestion made by the plaintiffs, namely, that the Option Agreement and the alleged variation of it created a constructive trust (see s 23C(2)), is not relevant.

Estoppel

1. The findings set out above also mean that the plaintiffs' primary estoppel claims have not been made out.
2. Mr Mills did not make any representation, whether in a conversation with Mr Carbone in April 2013, or in any document he later sent to Mr Carbone, that the Call Option period commenced on 4 October 2012 and would continue until 4 October 2016. If, as appears to be the case, Mr Carbone came to believe that the Call Option period continued until 4 October 2016, that was not the result of reasonable reliance upon what was said and done by Mr Mills. Mr Mills, by his conduct, represented no more than that it would be appropriate for the occupation fee to be calculated from 4 October 2012 and paid on 4 April and 4 October of each year.
3. Further, it is not the case that in April 2013 the parties adopted and thereafter conducted their legal relationship on the basis of an assumption that the Call Option period commenced on 4 October 2012 and would continue until 4 October 2016. I am satisfied, based on Mr Mills' evidence, that he did not adopt any assumption to that effect.
4. I am prepared to accept that by September 2016 Mr Carbone had formed a belief that the Call Option period continued until 4 October 2016. It appears that he said as much to Mr Wilson. It is difficult to discern the precise basis for this belief. As mentioned earlier, Mr Carbone gave a number of answers in cross-examination that suggested that "due to the events of 2012" the Option Agreement operated so that the Call Option period went from 4 October 2012 to 4 October 2016. These events appear to include those that occurred after the Option Agreement was entered into on 4 September 2012 up to the times when the Taringa sale contract was settled and the plaintiffs moved in and commenced working the properties. Mr Carbone seems to have had it in mind that the Call Option and the Call Option period did not become effective until the caveats were removed and the Taringa sale settled. Such sentiments appear to be reflected in some of Mr Wilson's notes (in particular pages 18 and 13 of Exhibit 6). Mr Carbone's belief may have been related to an understanding that the Option Agreement was conditional upon the termination of the Other Option, and an understanding that the Other Option was not terminated until the caveats were removed. It is of course not the case that the lodgement of caveats affected the validity of the termination of the Other Option.
5. In any case, Mr Carbone's belief about the option period was erroneous, and did not derive from the critical matters relied upon in support of the alleged estoppels.
6. It should be noted that Mrs Carbone did not give any evidence as to her understanding or the basis of any understanding she may have had concerning the Call Option period.
7. For the above reasons, the defendant is not bound by any estoppel that precludes him from denying that the Call Option period continued until 4 October 2016. The defendant is entitled to assert that the Call Option lapsed on 4 September 2016, and that the plaintiffs' subsequent exercise of the Call Option is of no effect.
8. It is not strictly necessary to deal with the further arguments raised by the plaintiffs to the effect that the defendant is also precluded from relying upon cl 15.1 of the Option Agreement to assert that the plaintiffs have not validly exercised the Call Option. However, in case my conclusions concerning the plaintiffs' primary estoppel claims are wrong, I will deal with this further estoppel argument.
9. Clause 15.1 of the Option Agreement provides: 15.1 If the Purchaser does not pay any monies payable to the Vendor on the due date for payment, the Purchaser must pay to the Vendor interest at the rate of 15% per annum on all moneys payable hereunder from the day on which the same are due for payment hereunder up to and including the date of payment and such interest shall be paid by the Purchaser to the Vendor together with such moneys payable hereunder and any exercise of the Option by the Purchaser will not be effective until and unless such interest is paid.
10. The defendant submitted that when the plaintiffs sought to exercise the Call Option they owed the defendant an amount of interest (of approximately $3,000) due to the late payment of the occupation fee the subject of the invoice issued on 4 April 2016. It is not disputed that this interest has not been paid to the defendant. The defendant further submitted that cl 15.1 created a contractual limitation on the effective exercise of the Call Option in the form of a condition precedent, namely, that there be no interest outstanding.
11. The plaintiffs made various submissions in response, including that cl 15.1 and in particular the expression "until and unless" should be construed so that an exercise of the Call Option may be made effective by a subsequent payment of any outstanding interest. The plaintiffs further submitted that by reason of the conversation between Mr Carbone and Mr Mills in April 2016, and the emails exchanged between them on 4 and 5 April 2016, the defendant is estopped from relying upon the failure to pay the outstanding interest as a reason to deny the validity of the plaintiffs' exercise of the Call Option. The plaintiffs contend that the defendant represented, and the parties thereafter proceeded on the basis, that adjustments would be made at final settlement of the plaintiffs' purchase of Wolonga in respect of any amounts of money (including interest) payable pursuant to the Option Agreement.
12. On the question of construction, it is my opinion that cl 15.1 allows a purported exercise of the Call Option to be treated as effective once the amount of any outstanding interest is paid. An exercise of the Call Option at a time when there is interest outstanding is not effective "until and unless" such interest is paid. Once it is paid, the purported exercise of the Call Option is treated as effective.
13. It seems to me that "effective" in cl 15.1 should be read as akin to "taken to have effect". That is, an exercise of the Call Option that would otherwise have immediate effect is only taken to have effect once the outstanding interest is paid. I do not think that "effective" in cl 15.1 should be read more broadly as akin to efficacious or valid. Clause 15.1 is more narrowly focused on the consequences of a failure to pay interest on monies payable under the Option Agreement. It stipulates that a failure of that type means that an exercise of the Call Option does not take effect until and unless the interest is paid. Clause 15.1 is not concerned with the broader question of whether any exercise of the Call Option is valid so as to bring into force the contract attached to the Option Agreement.
14. On that construction, if the Call Option was exercised at a time when there is interest outstanding, the exercise is not taken to have effect until the outstanding interest is paid. The outstanding interest would need to be paid before 5pm on the Call Option Lapse Date, otherwise the exercise of the Call Option would be taken to have effect only after the Call Option had lapsed.
15. As for the alleged estoppel, it seems to me that the only representations concerning adjustments made by Mr Mills in the course of the communications in early April 2016 were expressed to be conditional upon the sale of the plaintiffs' property in Western Australia. As explained by Mr Carbone in his final affidavit, that sale did not eventuate. However, it was apparently envisaged in April 2016 that if that sale occurred in the near future, and the plaintiffs then proceeded to exercise the Call Option, an adjustment could be made in favour of the plaintiffs in respect of any portion of the occupation fee "unused" at the time of settlement of the Wolonga sale. There was no representation made, or agreement reached, that there would be adjustments made at settlement in favour of the defendant to allow for underpayments on the part of the plaintiffs. For the above reasons, the plaintiffs' further estoppel argument also fails. The defendant is not precluded from relying upon the failure of the plaintiffs to pay the outstanding interest as a reason (or further reason) to deny the validity of the plaintiffs' exercise of the Call Option.
16. It should be noted that Mr Mills gave some answers in cross-examination to the effect that in his conversation with Mr Carbone in August 2016 it was agreed that the underpayment of interest would be "sorted out at the end". Mr Mills said in re-examination that the underpayment he was referring to in his answers was "the final lease payment" referred to in the April 2016 invoice. As the occupation fee referred to in the April 2016 invoice was paid in June 2016, the underpayment discussed in August 2016 would seem to be the interest payable as a result of the late payment. No application was made by the plaintiffs to amend their pleadings to claim that an estoppel arose from the August 2016 conversation. Senior Counsel for the defendant noted in his closing submissions that the matter had not been pleaded. In these circumstances, I do not propose to consider any such claim.
17. I note, however, that in any event Mr Carbone gave no evidence to the effect that were it not for what occurred in April 2016 (or August 2016) he would have paid the outstanding interest by a certain time. Again, Mrs Carbone gave no evidence as to her understanding or the basis of any understanding she may have had concerning payment of the outstanding interest.
18. The plaintiffs also argued that the defendant could not rely upon cl 15.1 because to do so would be contrary to the provisions of Division 4 of Part 8 of the Conveyancing Act. Those provisions concern options in leases. This argument, which was raised in closing submissions, was not contained in the plaintiffs' pleading. Counsel for the plaintiffs informed the Court that no application to amend would be made, as "the Court's jurisdiction is sufficiently invoked by the Amended Statement of Claim on the basis that [the plaintiffs] seek the Court's ruling on the exercise of the option". In my opinion, this matter ought to have been pleaded. It was plainly a matter that may take the defendant by surprise (see Uniform Civil Procedure Rules 2005 r 14.14). Nonetheless, and given that Senior Counsel for the defendant made no complaint about the lack of a pleading, I will proceed to deal with the argument.
19. The plaintiffs submitted that the Option Agreement was a lease that contained an option of a type referred to in s 133C(a)(i) of the Conveyancing Act, namely, a right on the part of the lessee to require the lessor to sell to the lessee the reversion expectant on the lease. If that is so, s 133E of the Conveyancing Act would operate to prevent the lessor from relying upon any provision that made the lessee's entitlement to the option depend on performance by the lessee of a specified obligation, unless the lessor served a prescribed notice. The plaintiffs then submitted that as cl 15.1 was such a provision, and as the defendant failed to serve a prescribed notice, the plaintiffs' entitlement to the option was not affected by any breach of cl 15.1.
20. I do not accept these submissions. They proceed on the assumption that the plaintiffs are lessees under a lease granted to them by the defendant as lessor. In my opinion that assumption is false. The Option Agreement does not contain a grant by the defendant of a lease to the plaintiffs. The Option Agreement provides in Schedule 4 for certain rights of possession in favour of the plaintiffs but, reading the Schedule as a whole, there is in my view no grant of exclusive possession. This is made clear by cll 2.1, 13.1 and 13.3. This conclusion is reinforced by the terms of cll 6.1, 10.2 and 13.2. The absence of a grant of exclusive possession is in my view decisive against the proposition that the Option Agreement contains a grant of a lease in favour of the plaintiffs, as opposed to a licence (see Radaich v Smith (1959) 101 CLR 209 at 214, 217-220 and 223). It follows that the rights of possession granted to the plaintiffs under the Option Agreement are not a lease for the purposes of Division 4 of Part 8 of the Conveyancing Act (see the definition of lease contained in s 128 of the Act).

Conclusion

1. None of the arguments raised by the plaintiffs in support of their contention that they have validly exercised the Call Option have been sustained. The Call Option was not exercised before 5pm on the Call Option Lapse Date of 4 September 2016. The Call Option therefore lapsed in accordance with cl 7.1 of the Option Agreement. The plaintiffs' attempt to exercise the Call Option on 28 September 2016 was thus ineffective. The Court will make declarations to that effect.
2. In addition, the Court will order that the plaintiffs withdraw the caveat they lodged on the title to the Property, in which they claimed an interest as purchaser under the Option Agreement.
3. Finally, as the plaintiffs' rights of possession have been terminated, it would be appropriate to give judgment for possession of the Property against the plaintiffs, and leave for the issue of a writ of possession.
4. In accordance with orders made by consent on 21 July 2017, all questions of damages and mesne profits have effectively been deferred, to be determined in a later hearing if necessary.
5. The Court directs that the parties confer and seek to reach agreement upon an appropriate form of orders. The Court further directs that the parties bring in within 14 days Short Minutes of Order to give effect to these reasons. The Short Minutes should also deal with costs. Prima facie, the appropriate order would be that the plaintiffs pay the defendant's costs of the proceedings to date. If agreement is not reached concerning the form of orders to be made, the Court will consider whether it is necessary for the matter to be re-listed for further argument.

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 April 2018