Messina & Anor v Doncaster Developments [2007] NSWSC 1275 | Case summary

1272/07 DENIS MESSINA & ANOR v DONCASTER DEVELOPMENTS (NSW) PTY LTD JUDGMENT Introduction 1 Doncaster Developments (NSW) Pty Ltd, the defendant, carried out a strata title development of its land at Kensington, Sydney. Denis Messina and his wife Farah Messina, the plaintiffs, were to acquire lot 2 in the unregistered strata plan. The price was to be $1,392,000. A deposit of $139,200 was satisfied by Mr and Mrs Messina providing Doncaster with a deposit bond in that amount. Proceedings against the grantor of the deposit bond were discontinued and the moneys were paid to a stakeholder pending the determination of these proceedings. 2 Initially, the contract was to be constituted by an exchange of counterparts before registration of the strata plan. Subsequently, a put and call option deed was executed providing for the exercise of the options after registration of the strata plan. And therein lies the difficulty. There are conflicts in the terms of the option and the attached contract for sale of land which was to come into existence upon an effective exercise of one or other of the options. 3 The schedule of unit entitlement in the strata plan annexed to the contract showed Mr and Mrs Messina with a proportionate unit entitlement of 203 out of 1,000 units. The registered strata plan showed them having 203 out of 861 units. The issues 4 Central to the issues between the parties are two provisions of the contract for sale. Clause 23.9.2 enabled Mr and Mrs Messina to rescind the contract if there was a variation in the proportional unit entitlement of their lot. It was in the following terms: "However, the purchaser can rescind if - … 23.9.2 in the case of the lot or a relevant lot or former lot in a higher scheme - s a proportional unit entitlement for the lot is not disclosed in this contract; or s a proportional unit entitlement for the lot is disclosed in this contract but the lot has a different proportional unit entitlement at the contract date or at any time before completion." 5 The contract for sale contained special condition 4, an entitlement of Doncaster to vary or amend the strata plan. That right extended to the schedule of unit entitlements because the Strata Schemes (Freehold Development) Act 1973, s 8(1) provides that a plan intended to be registered as a strata plan must include a location plan, a floor plan and a schedule unit entitlement. The special condition was in the following terms: "4.1 The Vendor must cause to have registered the Strata Plan promptly after the completion of the Building Works. 4.2 The Purchaser acknowledges that: (a) the Strata plan is provisional and subject to final approval by the Vendor and any competent authority; (b) the Vendor may without reference to the Purchaser vary or amend the Strata Plan; (c) the Vendor must not make any variations or amendments to the strata lot the subject of this contact which are other than minor. "Minor" includes a variation in the area of the lot by less than 5%. If the parties cannot agree on whether an alteration is otherwise minor the parties agree to request the President of the Australian Property Institute Inc (NSW Division) to appoint a person being a member of that Institute ("the expert") and the decision of the expert will be final and binding on the parties. In making a decision this person will be directed by the parties to assume that the property will be occupied solely for commercial purposes. The cost of the expert will be paid by the Vendor if the expert finds that the change is other than minor but otherwise must be paid by the Purchaser as a Purchaser allowance on completion. (d) the numbering of lots in the Strata Plan may alter; (e) the location of the entry and exit points to the car park may change and will raise no objection, requisition or claim in relation to any of these issues." 6 Mr and Mrs Messina claimed an anticipatory breach of the option deed by reason of the change in unit entitlement and gave a notice of termination of the option deed in reliance upon cl 23.9.2. They claimed that the subsequent exercise of the put option by Doncaster was invalid, but if it was not, they claimed to rescind the contract for sale under cl 23.9.2. The option deed 7 The option deed provided for a call option fee of $139,200 to be paid by Mr and Mrs Messina to Doncaster on the date of the deed. The call option fee could be satisfied by delivery of a deposit guarantee bond and the deposit bond was accepted by Doncaster. 8 Clause 4.1 of the option deed provided that the call option fee would always be the property of Doncaster and was not refundable unless Mr and Mrs Messina rescinded the option deed under clause 3.1 in which event the call option fee was to be refunded. But in any other circumstance it would not be refunded. 9 Clause 3.1 of the option deed entitled Mr and Mrs Messina to rescind it if the strata plan identified in the contract for sale was not registered by 31 December 2006. The contract for sale was annexed to the option deed. The strata plan was registered before that date so that, in terms of cl 4.1 of the option deed, Mr and Mrs Messina had no right to the return of the call option fee. 10 But cl 2.1 of the option deed provided that if Mr and Mrs Messina completed the contract after the option had been exercised, Doncaster would return to them the deposit guarantee bond on completion of the contract. 11 It seems to me, therefore, that cl 4.1 of the option deed applied only to a cash call option fee and any refund of the deposit bond was governed by cl 2.1. 12 By cl 2.2 of the option deed, Doncaster granted to Mr and Mrs Messina or a nominee an option to purchase the land and improvements described in the contract for sale in accordance with the contract for sale. The land and improvements were lot 2. Mr and Mrs Messina did not exercise that call option. 13 Doncaster was required to pay a put option fee of $1 to Mr and Mrs Messina on the date of the option deed and, by cl 5.2, Mr and Mrs Messina irrevocably offered to purchase lot 2 for the price and in accordance with the terms of the contract for sale. 14 The call option lapsed if not exercised in terms of cl 3.1 of the option deed. It provided that it might be exercised at any time before 5 pm on the date that was five business days after Doncaster gave notice to Mr and Mrs Messina that the strata plan specified in the contract for sale had been registered. 15 Doncaster was entitled to exercise the put option on the lapsing of the call option in the manner specified in cl 6.1 of the option deed. It was in the following terms: "The Grantor may accept the offer made under clause 5.2 (exercise the put option) during the period commencing on the lapsing of the call option in accordance with the clauses 3.1 and 3.2 of this deed and ending on 5.00pm five Business Days thereafter as follows: (a) by inserting into the Contract the name of the Grantee as purchaser; (b) by delivering the Contract, signed by the Grantor, to Michael Osborne & Associates of Level 14, 6 O'Connell Street, Sydney Ref: Michael Osborne." 16 On 7 November 2006, Doncaster advised Mr and Mrs Messina that the strata plan was registered on 6 November 2006. 7 November 2006 was a Tuesday. Thus, Mr and Mrs Messina had until Tuesday 14 November 2006 to exercise the call option. That period having ended without exercise of the call option, Doncaster had until Tuesday 21 November 2006 to exercise the put option. 17 In the meantime, on 13 November 2006, Mr and Mrs Messina gave their notice of termination. The exercise of option 18 On 15 November 2006, the solicitors for Doncaster forwarded to Michael Osborne & Associates a contract for sale signed by Doncaster. 19 Clause 7.3 of the option deed required Mr and Mrs Messina to deliver a counterpart contract for sale signed by them within five business days after they received the contract for sale under cl 6. That did not happen. 20 Clause 7.1 of the option deed provided that on exercise of the call option or the put option the parties to the contract for sale were immediately bound as vendor and purchaser. 21 The contract for sale originally provided for a purchase price of $1,392,000, a deposit of $139,200 and a balance of purchase price of $1,252,800. But before its annexation to the option deed, it was altered in handwriting striking out the $139,200 and the $1,252,800 and substituting $0.00 and $1,392,000 respectively. 22 The contract for sale signed by Doncaster and tendered in exercise of the put option had in handwriting crossed out the $0.00 and inserted $139,200.00 in its stead. The handwritten $1,392,000.00 as the balance of purchase price remained on the document. 23 Mr and Mrs Messina argued that the exercise of the put option was invalid because the change from $0.00 to $139,200 meant that the document tendered did not comply with the requirement for exercise of the option. It required a document in the form annexed to the option deed to be tendered. 24 On 22 November 2006, Mr and Mrs Messina gave notice of rescission of the contract for sale under cl 23.9.2 if they were wrong in their contentions that they had validly terminated the option deed and Doncaster had not validly exercised the put option. Termination of the option deed 25 Mr and Mrs Messina argued that they were entitled to rescind the option deed for anticipatory breach because the unit entitlement in the registered strata plan differed from the unit entitlement in the strata plan attached to the contract for sale annexed to the option deed. The anticipatory breach was a failure to be able to tender a counterpart of a contract for sale upon exercise of the put or call option containing a schedule of unit entitlement as in the schedule in the strata plan in the contract for sale attached to the option deed. That breach enlivened cl 23.9.2 of the contract for sale. They were entitled to rescind the option deed. 26 It was submitted on their behalf that there was no conflict between cl 23.9.2 and special condition 4.2 of the contract for sale. Special condition 4.2(c) was limited to variations to a strata lot and had nothing to do with a variation in unit entitlement. There had been no change in the area of lot 2. Special condition 4.2 placed no limitation upon a right to rescind the contract for sale. It was limited to raising no objection, requisition or claim whereas cl 23.9.2 related to rescission. 27 It was submitted that cl 23.9.2 was an exception to cl 23.8 of the contract for sale. It provided that normally the purchaser could not make a claim or requisition or rescind or terminate the contract for sale. That language was in stark contrast with that of special condition 4.2 that was limited to raising no objection, requisition or claim in relation to amendments to the strata lot, the numbering of lots and the location of the entry and exit points to the car park. 28 It was submitted on behalf of Doncaster that special condition 4.2(a) and special condition 4.2(b) of the contract for sale made it clear that the strata plan attached to the contract for sale could be varied without reference to Mr and Mrs Messina. Thus the schedule of unit entitlement as part of the strata plan could be amended by Doncaster. To that wide power, special condition 4.2(c) constituted an exception. The exception did not apply in this case because the complaint was not about a change in area of lot 2 but of its proportionate unit entitlement. With respect to that issue, Doncaster had an unfettered right to vary the entitlement with respect to lot 2. 29 Thus, it was submitted, there was a conflict between special condition 4.2 and cl 23.9.2 of the contact for sale and the special condition impliedly excluded cl 23.9.2 (Kannane & Ors v Demian Developments Pty Ltd [2005] NSWSC 1193 at [30]-[31]). 30 Attractive though this argument is and, no doubt, it represented the original intention of the parties when their arrangement was to be effected by exchange of counterparts, the submissions ignore the fact that the strata plan had been registered before the contract was formed. It was only if and when Mr and Mrs Messina or Doncaster exercised their rights under the option deed that the contract, including special condition 4.2 would take effect. And when it did take effect, the strata plan was no longer provisional or subject to final approval. Doncaster had ceased to be able to vary or amend the strata plan attached to the contract. That had already happened. The infelicity in drafting is, in my view, incurable. 31 This means that special condition 4.2 of the contract for sale was otiose, a consequence that a court will strain to avoid. But it is not alone. Special condition 4.1 also had no operation. Doncaster could not cause the strata plan to be registered when this condition came into effect upon the exercise of a put or call option because the strata plan was already registered. 32 No doubt these problems arose by reason of the change in structure of the agreement between the parties from an exchange of counterparts to the exercise of a put or call option after registration of the strata plan. But, harking back to the original intention of the parties cannot, in my view, cure them. 33 With some reluctance, therefore, I accept the submission made on behalf of Mr and Mrs Messina that there was an anticipatory breach of the option deed and they were entitled to rescind it under cl 23.9.2 of the contract for sale. Termination of the contract for sale 34 I take a similar view with respect to the notice of termination of 22 November 2006. If, contrary to my view, Mr and Mrs Messina were not entitled to terminate the option deed for anticipatory breach and if Doncaster validly exercised the put option, I am of the view that Mr and Mrs Messina were entitled to rescind the contract for sale that thereby came into existence under cl 23.9.2, which they did. Exercise of put option 35 Mr and Mrs Messina argued, as is usually the case, that an effective exercise of an option requires strict adherence to the method prescribed in the instrument creating the option (Tonitto v Bassal (1992) 28 NSWLR 564 at 574) and there was none by reason of the change of the amount of the deposit from $0.00 to $139,200. 36 Doncaster argued that the alteration made no difference to the amounts required to be paid under the contract for sale. If Doncaster had validly exercised the put option, Mr and Mrs Messina were obliged to pay $1,392,000 on settlement and to receive back the deposit bond. Reference was made to Iannello & Anor v Sharpe [2007] NSWCA 61. 37 I do not have to resolve this issue because, if one assumes that the put option was validly exercised and a contract for sale came into existence, for the reasons set out above, Mr and Mrs Messina were entitled to rescind that contract under cl 23.9.2, which they did. Conclusion 38 Mr and Mrs Messina are entitled to a declaration that on 13 November 2006 they validly terminated the option deed. I was asked to entertain an argument with respect to costs after publishing my reasons and I will do so. I will also hear the parties on any other appropriate orders that should be made. I direct the parties to bring in short minutes of order reflecting these reasons.

Messina & Anor v Doncaster Developments

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Cases Cited (3)