Payne v Timilty

The Deed of Put and Call Option

1. The Deed is dated 23 June 2020. The defendants are together referred to as Grantor and the plaintiffs are together referred to as Grantee. Clause 1.1 provides that the Deed sets out the terms and conditions upon which the Option is granted in respect of the Property.
2. Clause 1.2 contains definitions of various words and expressions "unless the contrary intention appears". Call Option is defined to mean the option granted by the Grantor to the Grantee pursuant to clause 2 of the Deed. Call Option Expiry Date is defined to mean 5.00pm on 24 April 2021. Call Option Fee is defined to mean the sum of $10,000. Contract is defined to mean the Contract formed upon exercise of the Call Option or the Put Option and in the form of Contract annexed and marked "A". Notice of Exercise of Call Option is defined to mean a notice in the form annexed and marked "B". Property is defined to mean the property in Woolooware Road, Burraneer. Purchase Price is defined to mean the price specified in the Contract.
3. Clause 2 of the Deed provides: 2.1 In consideration of the payment by the Grantee to the Grantor of the Call Option Fee (the receipt of which the Grantor hereby acknowledges), the Grantor grants to the Grantee an option for the Grantee to purchase the Property for the Purchase Price. 2.2 The Call Option shall expire at 5pm on the Call Option Expiry Date (in which respect time shall be of the essence) and can only be exercised by the Grantee delivering to the Grantor the following: (i) a Notice of Exercise of Call Option duly executed by the Grantee; (ii) the Contract completed and duly executed and dated by the Grantee; (iii) a cheque in favour of the Grantor's solicitor for the deposit referred to in the Contract. 2.3 Upon the exercise of the Option there shall be concluded between the Grantor and the Grantee a contract for the sale and purchase of the Property upon the terms and conditions set out in the Contract. 2.4 Upon receipt of the documents referred to in clause 2.1 [sic - 2.2] the Grantor must execute and cause to be delivered to the Grantee a counterpart of the Contract, such counterpart to bear the same date being the date of the exercise of the Option. The exchange of counterparts is intended only to permanently record the terms of the contract. The parties intend to be and will be bound by the Contract on the date of and by virtue of the exercise of the Option. 2.5 The first date upon which the Grantee can exercise this Option is that date being 43 days after the date of this Deed. 2.6 The sum of $10,000.00 shall be released to the Grantor and belong to the Grantor as from the date hereof. This amount shall not be required to be repaid to the Grantee unless the Grantor is in fundamental breach of the Contract.
4. Clause 3 concerns the Put Option, which cannot be exercised until the day following the expiry of the Call [Option].
5. Clause 4.1 provides: Upon exercise of either of the Options, the Call Option Fee paid by the Grantee pursuant to the terms of this Deed shall form part of the deposit payable pursuant to the terms of the Contract.
6. Clause 6 concerns the service of notices under the Deed. It appears that notices may be given to the Grantor at the address of Elliot Tuthill Solicitors in Cronulla.
7. Clause 9 provides: No variation, modification or waiver of any provision in this Deed, nor consent to any departure by a party from any such provision, shall be of any effect unless it is in writing, signed by the parties or (in the case of a waiver) by the party giving it. Any such variation, modification, waiver or consent shall be effective only to the extent to or for which it may be made or given.
8. A number of documents were annexed to the Deed, including a form of contract for sale (based on the 2019 edition of the Law Society/Real Estate Institute standard form) which provided for the sale of the Property for a price of $2,900,000 with a deposit of $290,000. Reference has already been made to cl 21.5 of the form of contract, which appears under the hearing "Time limits in these provisions".

Exercise of the Call Option

1. At 2.26pm on 22 April 2021 the plaintiffs' solicitors (Gibson Howlin Lawyers) sent an email to the defendants' solicitors which attached: 1. a letter dated 22 April 2021; 2. a Notice of Exercise of Call Option in the form annexed to the Deed, dated 20 April 2021 and signed by the plaintiffs; and 3. the front page of the form of contract annexed to the Deed, also signed by the plaintiffs, but undated.
2. The letter dated 22 April 2021 referred to the Notice of Exercise of Option and to the contract, and then continued: Our client is transferring the deposit direct to the account of the vendors to which account he has been paying rent.
3. The plaintiffs were at that time in occupation of the Burraneer property pursuant to a Residential Tenancy Agreement.
4. Later on 22 April 2021 a conveyancer employed by the plaintiffs' solicitors delivered certain documents to the office of the defendants' solicitors. These documents, which were contained in an envelope, consisted of the 22 April 2021 letter, the signed Notice of Exercise of Call Option, and the whole of the signed but undated form of contract.
5. There is evidence that Mr and Mrs Payne made several unsuccessful attempts to contact both Mr and Mrs Timilty by telephone on 23 and 24 April 2021. The plaintiffs intended to ask which bank account the deposit money should be paid into. None of these telephone calls were answered. It appears that on the morning of 23 April 2021 the defendants' solicitors had given advice to the solicitors in relation to the Deed that included advice not to take any calls from Mr Payne.
6. On 24 April 2021 Mrs Payne made attempts to transfer $280,000 into the defendants' "rent account", but was unable to effect the transfer.
7. Mr Payne and Mr Timilty had a telephone conversation (which also involved Mrs Payne and Mrs Timilty) shortly after 10.00am on 25 April 2021. The respective versions of the conversation differ, but nothing of significance turns upon what was said on that occasion. It seems that there was some mention of the unsuccessful attempt that had been made to transfer funds.
8. Shortly before 7.30am on 26 April 2021, Mr Payne and Mr Timilty had another conversation on the telephone. During that conversation Mr Timilty said that he did not want the money paid into the account, to which Mr Payne said that the money would be put into the account.
9. At about 9.42am on 26 April 2021 $280,000 was transferred by the plaintiffs into the defendants' "rent account".
10. There were communications between the respective solicitors for the parties later on 26 April 2021. The defendants' solicitors contended that the Call Option had not been validly exercised. The plaintiffs' solicitors contended that it had been. These contentions have been maintained by the parties ever since.
11. On 7 May 2021 a caveat (AR027702) lodged by the plaintiffs was recorded against the title to the Burraneer property. The caveat, which claims an interest pursuant to a contract for the sale of land (said to be dated 26 April 2021), remains on the title.
12. On 10 May 2021 the defendants entered into a contract for sale of the Burraneer property to Mr Ivan Lampret for a purchase price of $3,350,000. That contract is due for completion at the end of August 2021.

Applicable principles

1. There was no dispute as to the principles to be applied in this case. The question of construction at the heart of the dispute is to be answered by the application of the well-established principles that apply to the construction of written commercial agreements (see Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]). In accordance with those principles, the meaning of the terms of the Deed is to be determined by what reasonable business persons would have understood the terms of the Deed to mean. In making that determination it is necessary to consider the language employed by the parties as well as the surrounding circumstances known to them, and the commercial purposes or objects to be secured by the contract. It was not suggested by either party that any particular surrounding circumstances were of significance.

Determination

1. The definition of Call Option Expiry Date is clear in its terms. The expression means 5.00pm on 24 April 2021, unless the contrary intention appears. As recognised by the plaintiffs in their submissions, any departure from 5.00pm on 24 April 2021 as the meaning depends upon finding an intention to the contrary.
2. In that regard, the principles referred to above require consideration of the language used by the parties and the context in which the language appears. That is to say, consideration must be given to the text of the instrument that embodies the agreement between the parties, viewed as part of the instrument as a whole (see Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109).
3. In the present case, the instrument is the Deed, including its annexures. The defendants accept that the language of the form of contract annexed to the Deed may be taken into account on the question of construction of the expression Call Option Expiry Date (see Coplin v Al Maha Pty Ltd (2019) 19 BPR 39,485; [2019] NSWCA 159 at [75]). Not only is it physically a part of the Deed, it is referred to in numerous places throughout the Deed (see Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (supra) at [46]).
4. It should be kept in mind, however, that the terms of the annexed contract are not terms of the contract that was made when the Deed was entered into on 23 June 2020. The terms of the annexed contract are the terms of a contract that would be formed only if either the Call Option or the Put Option was exercised. So, cl 21.5 of the form of contract, for example, would become a term of the Contract (as defined in the Deed) that is formed if either option is exercised, but unless and until that occurs it is not a term of any contract.
5. The Deed itself sets out the terms and conditions upon which the Call Option and the Put Option are granted (see cl 1.1). In relation to the Call Option which is granted pursuant to cl 2.1, cl 2.2 stipulates when and how the option may be exercised. Its opening words provide for the option to expire at 5pm on the Call Option Expiry Date. As the definition of Call Option Expiry Date also includes the time of 5.00pm, one of the references to that time may be regarded as surplusage. In any case, cl 2.2 goes on to state that the Call Option can only be exercised by the Grantee in a specific manner. It is implicit that the option may not be exercised if the Call Option has expired. Clause 2.3 provides that if the [Call] Option is exercised, a contract is concluded between the Grantor and the Grantee upon the terms and conditions set out in the Contract (which is defined to mean the form of Contract annexed to the Deed and marked "A"). The final sentence of cl 2.4 states that the parties intended to be bound by such a Contract "by virtue of the exercise of the Option".
6. The notion of the Call Option Expiry Date plays an important role under the Deed. It serves to identify the time within which any exercise of the Call Option must occur. It is made clear that in this respect time is of the essence. It further serves as part of the definition of Put Option Expiry Date. The parties chose to define Call Option Expiry Date as 5.00pm on 24 April 2021, a date approximately 10 months after the date of the Deed. As the Call Option could be exercised from 43 days after the date of the Deed, a lengthy period was thus given for the exercise of the option.
7. In my opinion, no contrary intention appears such as to warrant a departure from the defined meaning of Call Option Expiry Date. I do not think that reasonable business persons in the position of the parties to the Deed would have understood that by reason of cl 21.5 in the form of contract annexed to the Deed, and because 24 April 2021 is not a business day (as defined in the form of contract), the Call Option Expiry Date is 5.00pm on 26 April 2021 (being the next business day as defined in the form of contract) rather than 24 April 2021. I think that reasonable business persons would be likely to regard the provisions of the form of contract as terms that would operate only if either the Call Option or the Put Option was exercised. In broad terms, they would be likely to regard the Deed and the form of contract as fulfilling different functions; the former dealing with the options and the latter dealing with the sale of the property if an option is exercised. That is not to say that the Deed and the form of contract would be regarded as entirely distinct. In that regard, I note that cl 1.3 of the Deed provides that expressions and phrases used in but not defined in the Deed are to have the same meaning they have in the form of contract. To that extent, the form of contract plays a direct role in construing the terms of the Deed, but we are here concerned with an expression that is defined in the Deed. Further, as already mentioned, there are numerous references to the Contract throughout the Deed (see, for example, cll 2.6, 4.1, 5 and 11).
8. In cl 2.2 itself, the Contract is referred to, but only in the context of the required manner of exercise of the Call Option. Insofar as the time for the exercise of the option is concerned, I think that reasonable business persons would read cl 2.2 of the Deed, together with the relevant definitions found in cl 1.2, and understand that the Call Option would expire at 5.00pm on 24 April 2021. That construction seems to me to accord with the language chosen by the parties. In my view, the fact that the last day for the exercise of the Call Option would thus fall on a Saturday does not give rise to any significant commercial inconvenience.
9. For the above reasons, I have concluded that upon the true construction of the Deed, the Call Option Expiry Date is 5.00pm on 24 April 2021. It follows that in order for the Call Option to be validly exercised, the three items specified in cl 2.2 must be delivered to the Grantor by that time. There is no dispute that the plaintiffs failed to deliver a cheque in favour of the Grantor's solicitor as required by cl 2.2 by that time. In these circumstances the plaintiffs cannot be said to have validly exercised the Call Option.
10. The above conclusion is sufficient to dispose of the case adversely to the plaintiffs. However, it seems to me that even if the Call Option Expiry Date is 5.00pm on 26 April 2021, the plaintiffs failed to validly exercise the option. Clause 2.2 of the Deed provides that the Call Option "can only be exercised" by delivery to the Grantor of three specified items. This provision should be construed as laying down essential requirements for the exercise of the option (see the principles discussed by Leeming JA in Hagerty v Hills Central Pty Ltd (2018) 19 BPR 38,853; [2018] NSWCA 200 at [40]-[46]). The parties thus stipulated that in order for the option to be exercised there had to be delivery of a cheque in favour of the Grantor's solicitor for the deposit. Despite that stipulation, the plaintiffs failed to deliver a cheque as required by cl 2.2, or indeed any cheque. The transfer of $280,000 into an account of the defendants does not satisfy cl 2.2 even if, as submitted by the plaintiffs, this was a means of payment of the deposit money that is more favourable to the defendants than delivery of the cheque envisaged by the clause. I am unable to regard this as an immaterial departure from the requirements of cl 2.2. It should be noted in this context that if a contract for sale came into existence upon the exercise of the option, the deposit was required to be held by a stakeholder, not released to the defendants.
11. It is not necessary to consider the further question of whether the failure of the plaintiffs to deliver a form of contract that was dated, as stipulated by cl 2.2, meant that the plaintiffs had failed to validly exercise the option.
12. The Court will order that the Summons be dismissed with costs.

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