HEADNOTE
[This headnote is not to be read as part of the judgment]
On 22 February 2021 the parties to this appeal entered into a Deed of Settlement and Release ("the Deed") which sought to settle earlier proceedings in the Supreme Court involving members of the Macarthur-Onslow family.
The Deed conferred on Ms Hobhouse and Mr Macarthur-Onslow various options to purchase parcels of real property including an apartment in Darling Point ("the Apartment"). Clause 5.6 gave Mr Macarthur-Onslow a first call option to purchase the Apartment at the midpoint market value as determined in accordance with cl 8.1(d); it provided that the option would expire at the same time as Ms Hobhouse's option to purchase another property would expire under cl 3.10. Clause 3.10 provided that Ms Hobhouse's option to purchase that other property would expire 60 days following the execution of the Deed, which meant that Mr Macarthur-Onslow's option to purchase the Apartment would expire on 23 April 2021. Clause 5.7 gave Ms Hobhouse a second call option to purchase the Apartment in the event that Mr Macarthur-Onslow did not exercise his option prior to its expiration; Ms Hobhouse's option would expire 60 days after the expiry of Mr Macarthur-Onslow's first call option. Clause 8.1(d) authorised Mr Rogers, an accountant, promptly to obtain and provide to Mr Macarthur-Onslow and Ms Hobhouse two current market valuations of the Apartment in order to determine a midpoint valuation and facilitate the exercise of the call options. Clause 12.2(d) provided that any option was to be exercised by service of written notice signed by the grantee together with two copies of the executed contract and a cheque for the deposit payable.
On 25 February 2021 Mr Rogers, in accordance with cl 8.1(d), sought valuations from two different valuers. He only received one valuation (at $4.25-$4.5 million) prior to the expiration of Mr Macarthur-Onslow's call option. Consequently, the price of the option could not be determined and a cheque for the deposit could not be provided in accordance with cl 12.2(d).
On 22 and 23 April 2021 Mr Macarthur-Onslow nevertheless purported to exercise his option by submitting a written notice of exercise, two signed contracts for sale and a cheque for $437,500, being 10% of the midpoint of the range of the one valuation obtained by Mr Rogers.
On 30 April 2021 Ms Hobhouse filed a summons seeking a declaration that Mr Macarthur-Onslow had not validly exercised his option. On 3 June 2021 Kunc J delivered judgment in favour of Mr Macarthur-Onslow and held that the option had been validly exercised. Crucial to his Honour's reasoning was the implication of the following italicised words into cl 12.2(d), such that it read:
"(d) Any such option … is to be exercised by service of written notice of exercise of option … signed by the Grantee, and if the price has been determined in accordance with this Deed, together with two copies of the Contract for the purchase of such property duly executed by the Grantee and cheque for the deposit payable …" (See [71] of the primary judgment).
The effect of this implication was that a cheque for the deposit would not be required in circumstances where the midpoint of the two valuations had not been determined prior to the expiration date.
The appeal brought by Ms Hobhouse raised two key issues. The first issue was whether the primary judge erred in implying the term that he did. The second issue, which only arose if the Court found that the option was not validly exercised, was whether Mr Macarthur-Onslow's estate was entitled to relief against forfeiture.
The Court (Macfarlan JA; Ward P and White JA agreeing) concluded that the late Mr Macarthur-Onslow did not validly exercise his call option and that his executor is not entitled to relief against forfeiture; it therefore allowed the appeal and dismissed the cross-appeal with costs: [3], [42].
In respect of the implied term, the Court held that the primary judge erred in finding that the five conditions for implying a term, as set out in BP Refinery, had been satisfied: [22]-[29]. The implication in the present case did not satisfy the second, third and fifth conditions: [27]. The term is not necessary to give business efficacy to the contract (second condition) because the option, without the implication, is capable of being exercised in many foreseeable circumstances as distinct from all conceivable circumstances; the primary judge erred in attaching significance to the latter: [24]. Where there was a delay in a valuer responding to a valuation request, as occurred in the present case, it would have been open to Mr Rogers to approach other valuers as there were no restrictions on the valuers to be used, or on the character of the valuation that he was required to obtain: [22]. Moreover, the term was not so obvious that "it [went] without saying" (third condition) because a reasonable person might not consider it appropriate to bypass the deposit requirement altogether, that being the effect of the implication: [26]. Finally, the term contradicted the express terms of the contract (fifth condition) because it changed the circumstances in which a deposit was required: [29].
In respect of relief against forfeiture, the Court held that relief should not be granted: [32]. Mr Macarthur-Onslow did not establish any of the "special heads" of fraud, accident, mistake or surprise, or any other circumstances that would establish unconscientious conduct on the part of Ms Hobhouse: [38], [41]. Importantly, Ms Hobhouse did not cause or contribute to Mr Macarthur-Onslow's inability to exercise the option: [39]. It was not unconscionable, without more, for Ms Hobhouse to insist upon the strict terms of the Deed, knowing that Mr Macarthur-Onslow wanted to purchase the Apartment, in circumstances where the contract was detailed and the product of careful drafting: [38]. A delay in obtaining the valuations could not be regarded as an "accident" in the relevant sense because it was reasonably within the contemplation of the parties and it was open to Mr Rogers to seek a valuation from another valuer: [40], [41].