Haixing Group Pty Ltd v Mary Ann Chan

Supreme Court of NSW|2015-10-30|Before: Darke J

Introduction

On 10 March 2015 the plaintiff, Haixing Group Pty Ltd, and the defendant, Mary Chan, entered into a Deed of Put and Call Option in respect of a property in Norwood Street, Burwood ("the Property"). The defendant, who is the registered proprietor of the Property, entered into the Deed as Grantor. The plaintiff entered into the Deed as Grantee.
The Deed provides that in consideration of the payment of a call option fee of $250,000, a call option is granted by the defendant to the plaintiff in respect of the Property. Clause 2 of the Deed concerns the manner of exercise of the call option.
Shortly after the Deed was made, the plaintiff lodged a caveat over the Property, claiming an interest as the grantee of an option. On about 9 September 2015 the plaintiff purported to exercise the call option. The defendant disputed that the plaintiff had validly exercised the call option. On about 19 October 2015 the defendant served a notice of proposed lapsing of the caveat.
By a Summons filed on 27 October 2015, the plaintiff seeks declaratory relief to the effect that it has validly exercised the call option and that the defendant is bound by the terms of the contract attached to the Deed. The plaintiff also seeks, inter alia, an order pursuant to s 74K of the Real Property Act 1900 (NSW) that the operation of the caveat be extended, or alternatively an order pursuant to s 74O of the Real Property Act for leave to lodge a further caveat, to claim an interest as the holder of a purchaser's lien consequent upon the valid exercise of the call option.

Relevant provisions of the Deed

Clause 1 of the Deed provides: 0.1 In consideration of the sum specified in Item 6 [$250,000] payable by the Grantee to the Grantor on the data hereof (the receipt of which the Grantor acknowledges) ("Call Option Fee") the Grantor grant to the Grantee (or its nominee) a call option to purchase the Property and the inclusions described in the form of Contract attached to this Deed ("Contract") at the price and on the conditions specified in the Contract ("Call Option"). 0.2 This Call Option constitutes an irrevocable offer by the Grantor to enter into a binding agreement for the sale of the Property, which may be accepted strictly in accordance with the provisions of this Deed, otherwise the Option and this offer shall lapse. 0.3 This Option is binding on the Grantor and in the event of his death on his estates. 0.4 The benefit of this Option may be assigned and the Option may be exercised by the Grantee or by his estate or assigns. 0.5 The Grantee may appoint as his nominee to exercise this Option one or more persons and corporations and may include himself as one of the nominees.
Clause 2 of the Deed provides: 2.1 This Call Option may be exercised at any time after 43 days from the date of this Deed and before 4:00pm on the date specified in Item 7 [6 months from 10 March 2015, viz 10 September 2015], as follows: 2.1.1 By delivery of the following: (i) written notice of exercise of the Option; (ii) two copies of the Contract (prepared by the Grantee) duly executed by the Grantee and the Guarantor; (iii) a cheque for the balance of 10% Deposit payable under this Contract, allowing a credit for the Option Fee, in favour of the stakeholder named in the Contract. 2.1.2 If the benefit of this Call Option shall have been assigned, the Notice of Exercise of Option and the two copies of the Contract shall be signed by the assignee and the guarantor. Evidence of the assignment shall also be delivered at the time of exercise of the Option. The Assignee shall be the Purchaser and the Guarantor shall be the guarantor in terms of special condition 12 of the Contract. 2.1.3 Where the Call Option is exercised on behalf of a nominee, the Notice of Exercise of Option and the two copies of the Contract shall be signed by the nominee. There shall also be delivered at the time of exercise of the Option a form of nomination signed by the Grantee and the Guarantor (or by the person entitled to make the nomination at that date). The Nominee shall be the Purchaser and the Guarantor named in the Contract. 2.1.4 The documents referred to in paragraphs 2.1.1 or 2.1.2 or 2.1.3 (if applicable) and the cheque shall be delivered personally to the Grantors at the address specified in Item 5 [the Property] or to the office of the solicitors specified in Item 10 [S.A. Teen Solicitor] (including in the event of either of the Grantors' prior death). 2.2 On delivery of the Notice of Exercise of Call Option (and the other documents and the cheque) in accordance with clause 2, the party bound by the Call Option at that date and the party in whose favour it has been exercised become immediately bound as Vendor and as Purchaser respectively under a Contract for Sale of Land in accordance with the terms of the Contract. The Grantor (on behalf of themselves and the persons which may be bound by the Call Option at its date of exercise) covenants and agrees that the vendor will execute one of the two copies of the Contract delivered on exercise of the Option promptly and forward to Day Legal Pty Limited, Specialist Property Lawyers, at Suite 3.07 'Post' 46a Macleay St, Potts Point, NSW 2011 an executed copy of the Contract, within 3 days after service of the Notice of Exercise of Option. 2.3 The Purchase Price to be specified in the Contract upon exercise of this Option shall be $2,500,000. The Deposit to be specified in the Contract upon exercise of this option shall be 10% of the Purchase Price.
The contract attached to the Deed was in the standard Law Society and Real Estate Institute form (2014 edition), together with a number of special conditions. The obligations of the purchaser under the contract were to be guaranteed by the plaintiff's sole director and secretary, Qianyin Zhang.

The purported exercise of the call option

On 2 September 2015 solicitors retained by the plaintiff, Day Legal, sent an email to SA Teen Solicitor in the following terms: Our client will exercise the Call Option and deliver the signed copy of Contract to your office for exchange on 10th September.
On 9 September 2015 Day Legal sent a letter by courier to SA Teen Solicitor in the following terms: We enclose the Contract signed by the purchaser. Subject to Contracts being identical and properly executed, you are authorised to date and exchange Contracts. The vendor's signed Contract can be sent to our office via the document exchange. When exchange has taken place would you please email a copy of the front page of the Contract to this office.
The enclosed contract was in the same form as the contract attached to the Deed, save that certain details (including the identity of the purchaser and the amounts of the price and deposit) were filled in, and it was executed for the plaintiff in accordance with s 129 of the Corporations Act 2001 (Cth) by Qianyin Zhang, and by Qianyin Zhang personally as guarantor.
It will be noticed that only one copy of the contract duly executed was delivered. Neither was any cheque delivered.

The parties' contentions

The defendant, for whom Mr M W Young SC appeared, submitted that for a number of reasons it was clear that the plaintiff had failed to validly exercise the call option. He therefore submitted that there was no serious question to be tried that the plaintiff had validly exercised the call option.
Mr Young contended that neither the 2 September 2015 email nor the 9 September 2015 letter constituted written notice of exercise of the option as required by clause 2.1.1(i). As for the email, it was said that it was a statement of an intention to do something in the future, namely exercise the option, not notice of a present exercise of the option. Further, it was not delivered personally as required by clause 2.1.4. As for the letter, it was said that it was not a notice of exercise of the option in circumstances where it did not use the words "exercise" or "option", and made no reference to the email which did refer to an exercise of the option.
Mr Young further contended that the plaintiff, by delivering only one copy of the contract duly executed, had failed to comply with the requirements of clause 2.1.1(ii). He emphasised that clause 1.2 of the Deed stated in terms that the call option was an irrevocable offer which may be accepted "strictly in accordance with the provisions of this Deed".
No point was taken that the plaintiff had failed to comply with the requirements of clause 2.1.1(iii), in circumstances where, allowing a credit of $250,000 for the option fee, no balance of the deposit under the contract remained payable.
Mr S Chapple of counsel, who appeared for the plaintiff, contended that there was a seriously arguable case that, by virtue of the email of 2 September 2015 either alone or in combination with the letter of 9 September 2015, notice of exercise of the option had been given as required by clause 2.1.1(i). He submitted that it was clear that, taken together, the documents provided written notice to the defendant of the exercise of the option. Mr Chapple further submitted that the documents (including the email) should be taken to have been delivered to the office of SA Teen Solicitor, and that personal delivery was not required in respect of that address.
Mr Chapple also contended that there was a seriously arguable case that by delivering one executed copy of the contract the requirements of clause 2.1.1(ii) were satisfied. It was submitted that it was seriously arguable that the Deed should be construed such that exact compliance with clause 2.1.1(ii) was not required, and that substantial compliance was sufficient. It was put that to require exact compliance with clause 2.1.1(ii) would place an absurd premium upon a particular form, in circumstances where execution of a contract merely formalises what is to occur once the option has been exercised. It was further put that the terms of clause 2.2 indicated that the parties became bound on the delivery of the (capitalised) Notice of Exercise of Call Option, rather than the parenthetical "other documents and the cheque", and in any event the provision of a second copy of the executed contract was merely a matter of administrative convenience. Finally, it was suggested that the requirement for two copies was inserted for the benefit of the plaintiff.
Mr Chapple submitted that if there was a serious question to be tried, the balance of convenience was strongly in favour of either the extension of the caveat or the grant of leave to lodge a fresh caveat. Mr Young did not submit to the contrary.

Applicable principles

There was no real dispute as to the legal principles to be applied. I was referred to the well-known summary of the principles given by Kirby P in Prudential Assurance Co Limited v Health Minders Pty Limited (1987) 9 NSWLR 673 at 677 (see also Samuels JA at 681-682 and McHugh JA at 683). Kirby P stated: Applicable principles governing options: The legal principles to be applied to resolve the differences in the construction of the respondent's letter were not in dispute. Relevantly, they include: 1. The primary rule is that the purported exercise of the option must express clearly and unequivocally the fact that this is what is intended: see Dixon CJ in Ballas v Theophilos (No 2) (ibid at 196); see also R Fox, "Options" (1950) 24 ALJ 7 at 11. However because clarity and lack of equivocation are matters of opinion and impression, because inflexible insistence on form could lead to plain injustice and because fact situations vary almost infinitely a number of elaborations of this primary rule have been developed by the courts. 2. It is not necessary, for example, for the effective exercise of an option, that terminology conforming precisely to the terms of the option should be used: see Williams J in Ballas v Theophilos (No 2) (ibid at 205); cf Gower-Chapman v Morris [1987] NSW Conv R No 55-341. 3. The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it, in all the circumstances of its receipt: cf Carter v Hyde (1923) 33 CLR 115 at 126; adapting Romer J in Jones v Daniel [1894] 2 Ch 332 at 335. The addition by Isaacs J of the phrase "in the circumstances of its receipt", adds instruction that the consideration which will govern the meaning to be ascribed to the letter is not to be judged in isolation, weighing only the words used. It is to be judged against the background of the dealings between the parties: cf Braham v Walker (1961) 104 CLR 366 at 376 and Lamont v Heron (1970) 126 CLR 239. The parties did not dispute that this Court could look to those dealings, at least up to the time for the exercise of the option had expired. 4. Although a notice may mis-state the terms of the option which it purports to exercise, it may nevertheless amount, depending on the circumstances, to an unqualified and unconditional exercise of the option: Quadling v Robinson (1976) 137 CLR 192 at 201. On the other hand, if the grantee of the option sets out an erroneous understanding of it and then purports to exercise the option as so understood, the exercise will, generally speaking, be ineffective (ibid at 201): see also Oliver v Oliver (1958) 99 CLR 20. 5. Nonetheless, every case depends ultimately upon its own facts and the proper construction of the document which is in dispute. Accordingly care must be observed in laying down general rules suggested to be of inflexible operation: see Gibbs J in Quadling v Robinson (ibid at 201) and cf Hope J in Johnson v Bones (at 37).
That summary has been adopted on numerous occasions since, including in the Court of Appeal in Young v Lamb [2001] NSWCA 225 at [21]-[26] per Stein JA (with whom Mason P and Hodgson JA agreed), and more recently by Lindsay J in C & P Syndicate Pty Limited v Reddy [2013] NSWSC 643 at [86].
I was also referred to Tonitto v Bassal (1992) 28 NSWLR 564 where Sheller JA (with whom Handley JA and Hope A-JA agreed) observed at 574 that it is generally accepted that effectual exercise of an option requires strict adherence to the method prescribed in the instrument creating the option; and to Boreland v Docker [2007] NSWCA 94 where Beazley JA (as her Honour then was) stated (at [31]): It is apparent from Tonitto v Bassal that although it is authority for the proposition that the exercise of an option requires strict adherence to the method prescribed in the instrument creating the option, it may be a question of construction as to what those requirements are.
In that context, Mr Chapple cited Spectra Pty Limited v Pindari Pty Limited [1974] 2 NSWLR 617, where a clause in an option to renew a lease, which required notice to be sent by pre-paid registered mail, was construed by Wootten J as not stipulating for the sole and essential method of sending notice. Mr Young cited various cases including Buildev Development Pty Limited v PIC Sales Pty Limited [2003] NSWSC 1245 (per Campbell J) and Comdox No 24 Pty Limited v Robins [2009] NSWSC 367 (per Bryson AJ).
Buildev Development Pty Limited v PIC Sales Pty Limited (supra), as here, involved an application, by a grantee of an option to purchase land, to extend the operation of a caveat. The grantee had sent an option extension notice to the solicitors for the grantor. The notice was accompanied, not by a bank cheque as required, but by a personal cheque. There was evidence that the personal cheque would have been met on presentation. Campbell J rejected an argument that the doctrine of substantial performance had any role to play in that context (see at [11]-[13]), and went on to note (at [14]) that it was well established that the conditions for exercise of an option must be precisely fulfilled.
In Comdox No 24 Pty Limited v Robins (supra) at [23], Bryson AJ noted that if particular means for exercising an option are intended to be essential for effective exercise, compliance with the prescribed means is necessary if the stated contractual relationship is to result. His Honour continued: It does not matter whether observing the prescribed means is objectively important: what matters is whether the words used show that they were intended to be essential. If the language used really means that it is a condition of effective exercise of option that the notice must be on blue paper and delivered by a man in a clown suit, pink paper or a woman in a pixy suit will not be effective. There must be compliance; there is no allowance for taking some other non-complying course, even if it appears to achieve the same result. I do not see any value in speaking of strict compliance or exact compliance; compliance is required, the fair reading of the contractual requirement should be understood and given effect, and undue exactitude or the creation of difficulties which the language does not yield from a fair reading are not appropriate. It is inherently likely that requirements for compliance with provisions of the existing lease, for written notice of exercise of option and for exercise within defined periods are conditions compliance with which is essential. References to means of communication and matters of details are unlikely to be intended to be essential; but they are essential if it clearly appears that they are intended to be. The Court does not spell out conditions from slight or incidental references.
The statement made by Bryson AJ that compliance, not strict or exact compliance, is required, was unreservedly adopted by Pembroke J in Kavia Holdings Pty Limited v Suntrack Holdings Pty Limited [2011] NSWSC 716 at [20].

Determination

In my opinion there is a serious question to be tried that the plaintiff, by sending the letter of 9 September 2015 to the office of SA Teen Solicitor, delivered written notice of exercise of the call option in accordance with clauses 2.1.1(i) and 2.1.4 of the Deed. The letter was certainly delivered to that office, and it is at least reasonably arguable that mere delivery to that office satisfies the requirements of clause 2.1.4 of the Deed. As for clause 2.1.1(i), it is reasonably arguable that the defendant, having received through her solicitor the letter of 9 September 2015 which was accompanied by a contract executed by the plaintiff, would fairly have understood it "in all the circumstances of its receipt" as notice from the plaintiff that it was thereby seeking to exercise the option. Even though the letter made no reference to the email of 2 September 2015, it should be understood in the light of that earlier communication, which clearly foreshadowed that there would be an exercise of the call option and delivery of the signed copy of the contract for exchange on 10 September 2015. The letter of 9 September 2015 itself refers to an exchange of contracts.
I am not satisfied, however, that there is a serious question to be tried that the plaintiff, by delivering only one duly executed copy of the contract, satisfied the requirements of clause 2.1.1(ii). That clause, in its terms, calls for two copies of the duly executed contract to be delivered. The delivery of only one such contract is plainly a failure to comply with the stipulation. Moreover, I do not think it can be said that, on a proper construction of the Deed, compliance with the stipulation was not intended to be essential for the valid exercise of the option. The language of clause 1.2 reveals an intention that the offer constituted by the call option may be accepted "strictly in accordance with the provisions of this Deed", otherwise the option and offer shall lapse. This leaves very little room for an argument that something less than strict compliance with the specified mode of acceptance may suffice.
The parties have expressly stipulated for a particular mode of acceptance involving the delivery of two duly executed contracts. I do not think this should be regarded as a mere matter of administrative convenience. Nor do I think that the requirement for two contracts to be delivered is a provision which is only for the benefit of the plaintiff. The delivery of two duly executed copies of the contract enables the defendant to execute one of the copies for return to the plaintiff's solicitor, and to retain the other copy. The defendant is thereby able to retain a copy that bears the signatures of the purchaser and the guarantor under the contract.
I do not think that clause 2.2, which is punctuated and styled so as to appear to give more emphasis to the delivery of the notice of exercise of option than to the delivery of the other documents and the cheque, can overcome the clear words of clause 1.2. Clause 2.2 does not, despite its emphasis, mean that compliance with clauses 2.1.1(ii), 2.1.2 and 2.1.3 (as applicable), or clause 2.1.1(iii), is not required.
In its terms, clause 2.2 requires delivery "in accordance with clause 2". Insofar as delivery of "the other documents" is concerned, there must be delivery in accordance with clauses 2.1.1(ii), 2.1.2 and 2.1.3 (as applicable). In each case the Deed specifically calls for two copies of the contract to be delivered. To deliver only one copy of the duly executed contract is not a delivery of the other documents in accordance with clause 2. Insofar as delivery of "the cheque" is concerned, there must be delivery in accordance with clause 2.1.1(iii). It is true that if (as in the present case) the Call Option Fee of $250,000 has in fact been paid, no balance of the 10% deposit under the contract remains payable once a credit for the option fee is allowed. In that situation, there is no amount (I do not think that zero can be regarded as an amount) for which a cheque in accordance with clause 2.1.1(iii) can be drawn. As this is something the parties must be taken to have contemplated when the Deed was made, clause 2.1.1(iii) ought be construed as requiring a cheque for the balance, if any, of the 10% deposit that remains payable once a credit for the option fee is allowed. So construed, no cheque is required to be delivered unless some part of the 10% deposit remains payable after a credit for the option fee is allowed. If part of the deposit does remain payable, a cheque for the relevant amount must be delivered in accordance with clause 2.1.1(iii).
As Beazley JA put it in Boreland v Docker (supra), the identification of the requirements for the exercise of an option is a question of construction. In the circumstances of the present case, reading the Deed as a whole and having regard in particular to the language of clause 1.2, I do not think it can be seriously doubted that compliance with clause 2.1.1(ii) was required if the call option was to be validly exercised. Unfortunately for the plaintiff, delivery of only one copy of the duly executed contract was not sufficient to comply with clause 2.1.1(ii).
It follows from the above that I do not think that there is a serious question to be tried that the plaintiff has validly exercised the call option. In these circumstances, and given that the time for exercise of the option has now passed, I am not satisfied that the plaintiff's claimed interest in the Property as a grantee of an option pursuant to the Deed has or may have substance within the meaning of s 74K(2) of the Real Property Act, and I decline to make an order extending the operation of the plaintiff's caveat. I further decline to make an order under s 74O of the Real Property Act giving leave to the plaintiff to lodge a further caveat, to claim an interest as the holder of a purchaser's lien consequent upon the valid exercise of the call option.
The plaintiff should pay the defendant's costs of the application.

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: 05 November 2015

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (7 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (13)

Cited By (2)