Print National Nominees Pty Ltd v Veritage Group Holdings Pty Ltd

LEGISLATION CITED : Conveyancing (Sales of Land) Regulation 2005, Sch 4 Pt 2.2 Conveyancing Act 1919, s52A(2)

Cooper Brookes (Wollongong) Pty Limited v Commissioner of Taxation (1981) 147 CLR 297 Fitzgerald v Masters (1956) 95 CLR 420 CASES CITED : Strickland v Grieve (1995) 7 BPR 14,376 Styles v Wardle (1825) 4 B&C 908; 107 ER 1297 Watson v Phipps (1985) 60 ALJR 1

PARTIES : Print National Nominees Pty Ltd (Plaintiff) Veritage Group Holdings Pty Ltd (Defendant)

COUNSEL : Mr C R C Newlinds SC with him Mr D Allen (Plaintiff/Cross-Defendant) Mr D J Fagan SC with him Ms A M Seward (Defendant/Cross-Claimant)

SOLICITORS : Palmieri Lawyers (Plaintiff/Cross-Defendant) Landerer and Company (Defendant/Cross-Claimant)

• 12 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4683/06 PRINT NATIONAL NOMINEES PTY LIMITED V VERITAGE GROUP HOLDINGS PTY LIMITED JUDGMENT Issue 1 The question is whether the plaintiff, Print National Nominees Pty Ltd (Print National) has validly exercised an option to purchase property at 72 Pacific Highway Lisarow (the property) from the defendant and whether an order for specific performance of the contract arising on exercise of that option should be made. The answer to the question depends upon the true construction of the option and a claim by the defendant for rectification. Facts 2 The defendant, Veritage Group Holdings Pty Ltd (Veritage) is and was at all relevant times, the owner of the property, although when the negotiations between the parties started it was under receivership and management. In early 2004 there were negotiations between Mr Youngman of Veritage and Mr James of Veritage Sales Pty Limited for a lease from Veritage to Veritage Sales of the property and for an option to Veritage Sales to purchase the property for $1,800,000. Those negotiations were subject to the removal of the receiver and manager of Veritage and other matters which need not be taken further. A letter of 9 January 2004 from Mr Youngman to Mr James sets out the proposals. This included an undertaking of Mr Youngman that he would procure that Veritage would grant an option to purchase on certain terms, which terms would include the following: Option Exercise Period: From the date three months and one day after the grant of the option to 5.00 pm on the date twelve months after the date of grant of the option.

Mr James endorsed the letter with his agreement on the date it bears. 3 On 7 May 2004, Landerer and Company, solicitors for Veritage, sent a draft deed of option to Veritage Sales. This set out a definition of the option period as follows: Option period means the period of 12 months commencing on the day which is three months and one day from the date of this deed and ending at 3.00 pm on ______________ 2004 subject to any extension granted by the grantor in accordance with clause 4.2. 4 Mr Brooks was the solicitor for Veritage Sales. On 16 June he responded to Landerer and Company, raising various points about the option agreement. In handwriting at the end he added, "P.S. Our client agrees to the option expiring on 1 June 2005, provided agreement is received on other matters". 5 Veritage Sales changed its name to Print National Pty Limited. On 24 August 2004 Landerer and Company responded to the requests and comments of Mr Brooks and stated that 1 June 2005 was the expiry day of the option. Mr Brooks responded on 7 September, among other things asking that the grantee be a new company, Print National. He did not deal with the expiry date. 6 After some further communication Brooks and Company wrote to Landerer and Company on 4 February 2005 sending a copy of the option agreement as forwarded on 7 May 2004 with some alterations made to it, the document as altered being executed by Print National. The document was altered, among other things, to show the name of Print National as the grantee and the definition of the option period was altered so that it read as follows: Option period means the period commencing on the date of this deed and ending at 3.00 pm on 30 September 2005 subject to any extension granted by the grantor in accordance with clause 4.2.

On the same day, probably before the executed deed was received, Landerer and Company wrote to Brooks and Company saying, The letter of Veritage (Sales) Pty Limited signed by our client on 9 January 2004, provided that Veritage (Sales) Pty Limited would be given an option to purchase the property. The option exercise period would commence three months and one day after the grant of option and cease twelve months thereafter.

This was, I consider, capable of two constructions. 7 There was some further correspondence Mr Brooks wrote on 16 March to clarify the position and on 21 March 2005 Landerer and Company wrote acknowledging that Print National could be the grantee and then stating in numbered paragraph 2:- 2. The option period cannot commence on a day earlier than three months after the grant of the option. The amendment to the definition of option period by you is not acceptable. 8 Brooks and Company responded to this on 13 April, saying: In relation to 2 our client is agreeable to the definition of the option period being restored to what it was previously, namely the period being between three and fifteen months after the date of the option. Our client only suggested a shorter period having regard to the delays in getting the option executed. 9 On 21 June 2005 Landerer and Company wrote to Brooks and Company and sent a revised option. The letter, inter alia, included the following: In your letter of 13 April you referred to an option period between thirteen [sic] and fifteen months. That was never agreed. The letter of 9 January 2004 made plain the option exercise period is: From the date three months and one day after the grant of the option to 5.00 pm on the date twelve months after the date of agreement of the option. The three months initial period is the result of the Conveyancing Sale of Land Regulation. 10 In the new draft sent with that letter the definition of the option period was as follows: Option period means the period of twelve months commencing on the day which is three months and one day from the date of this deed and ending at 3.00 pm on __________ 2004 subject to any extension granted by the grantor in accordance with clause 4.2.

On 23 June Brooks and Company advised that the terms of the option were agreed and asked for the original to be signed. On 27 June Landerer and Company sent a copy of the contract for sale in duplicate to be annexed to the option. On 28 June 2005 Brooks and Company sent to Landerer and Company the duly signed option agreement with the relevant option fee. The deed was not dated by Print National as grantee nor was any ending date for option inserted into the option period. On 23 August 2005, Landerer and Company wrote to Brooks and Company enclosing a copy of the option agreement exercised by Veritage as grantor. The letter said: The option has been dated 1 July 2005 being the date the documents were received by us from you". The option period has been completed and the option will expire on 30 June 2006. 11 The evidence of Mr Farland is that the letter was dictated on the day before the option was sent. He said that he had a discussion with Mr Brooks about dating the option for 1 July and Mr Brooks agreed to that. The option period was not completed with the date 30 June 2006. On 26 October 2005 Landerer and Company wrote to Brooks and Company listing what were described as a number of outstanding items, one of which was: 2. Secondly, by way of clarification we are inserting in the definition of option period the date 30 June 2006 being the expiry date of the option. You should do so on your counterpart document if the date has not already been inserted.

It is apparent that by then Mr Farland must have realized there was a problem, although he took no steps to explain what it was. 12 As I have said the document executed by the grantor had the date 1 July 2005 on it when it was forwarded by Landerer and Company to Brooks and Company. Brooks and Company did not insert any end date in the definition in the option period. The date in the copy executed by Print National was inserted by Mr Farland as he said he would on 26 October. On 13 July 2006 Landerer and Company wrote to Mr James, as Mr Brooks was no longer authorised to practise as a solicitor, stating that the option had expired. This was disputed but in any event Print National gave notice of exercise of the option on 22 August 2006. 13 The option deed included the following clause under the heading "Background": 2. BACKGROUND 2.1 Option to be Granted The Grantee has requested and the Grantor has agreed to grant an option to purchase the Property on the terms and conditions contained in this Deed. The grant is pursuant to a letter of agreement dated 9 January 2004 from John Youngman to David James, and conditions stipulated therein, a copy of which is annexed hereto. Pleadings 14 The pleaded claim of the plaintiff is that the date of the deed is 23 August 2005, being the date of execution by the defendant, but in the alternative that it is 1 July 2005. In either case the plaintiff says that the option was exercised on 21 August 2006 - this may be an error - the date should probably be 22 August 2006 but nothing turns on that. The plaintiff seeks specific performance of the contract arising upon execution of the option. By its defence, Veritage, admits that the option deed is dated 1 July 2005, but denies valid exercise of the option. In essence the claim of the defendant is that notice was given after the option period had expired. 15 By cross-claim in the proceedings, Veritage seeks a declaration that (a) the definition of option period in the document executed by the parties does not express their true agreement; (b) a declaration that upon the true construction of the option the option period expired on 30 June 2006; (c) an order for rectification by altering the definition of option period so that the number 9 is substituted for the number 12; or alternatively, "by replacing the whole of clause 3.1 with the words - option period means the period commencing three months and one day from the date of the deed until 3.00 pm on the day twelve months from the date of the deed". 16 The claim for rectification is based firstly on common mistake of the parties, and that it was the common intention that the option exercise period was to commence three months and one day from the date of grant and end twelve months after the date of grant. 17 Next there is a claim for rectification for unilateral mistake based on the allegation that (i) the defendant mistakenly believed the option period definition was in terms of the letter of 9 January 2004; (ii) the plaintiff knew or suspected that the defendant held this mistaken belief at the time it signed the option document; and, (iii) that despite this knowledge or suspicion, Print National failed to alert the defendant to its mistaken belief. I should add that in the defence the defendant adds a plea of lack of clean hands on the basis of the facts set out in the cross-claim, but presumably limited to the claim for relief based on unilateral mistake. Additional facts 18 No evidence was given for the defendant other than by affidavit of its solicitor. While I find, in the absence of any evidence to the contrary from Mr Brooks, that the date 1 July 2005 was inserted by agreement with him, there is no evidence that either the plaintiff company or the defendant agreed to this date being inserted. I should add that it would clearly have been a false date as it is difficult to see how an option could come into existence prior to it being executed by the grantor. In any event it could not be thought that the parties intended to backdate it so as to defeat to some extent the plain requirements of Sch 4 Pt 2.2 of the Conveyancing (Sales of Land) Regulation 2005 where it is sought to exclude a contract arising from exercise of option from the requirements of s52A(2) of the Conveyancing Act 1919 so far as it applied to this option. 19 Mr Farland, the solicitor for the defendant company could not say for certain that he had spoken to Mr Brooks and obtained his agreement as to the insertion of the date 30 June 2006 in the definition of option period and I find it unlikely he did as the date was not inserted. 20 Mr James gave evidence for the plaintiff company. In essence he said that prior to signing the option document on behalf of the plaintiff company, he went through it carefully with Mr Brooks and worked out the dates for the option period noting that it gave a period of 15 months or 12 months after the three months plus a one day exclusion period. He accepted that he would have seen the document which came back executed by the defendant, but he said that he gave no attention to the date of 1 July inserted in it and neither did he refer back to the letter. Arguments and discussion 21 The first thing to realise is that, leaving aside the provisions in the letter and taking the option period as it appears in the document as signed by the parties, the plaintiff did exercise the option within time. Mr James made it clear, and I accept this evidence, that he would have been in a position to exercise it prior to 30 June 2006, but for business reasons did not wish to do so. I accept that evidence. Construction 22 I turn now to the question of construction. This was put by the defendant as its main argument. That argument runs along the following lines: that the statement in the deed referring to the letter of 9 January 2004, the option period stated in that letter and the option period set out in the deed cannot stand together. It is said that there is an ambiguity and that on consideration of the objective surrounding circumstances, particularly the fact that the option obviously came into existence as a result of the letter there is a clear mistake so obvious that there is no need for rectification; so that properly construed the option period means a period of nine months commencing three months and one day from the date of the deed and ending 12 months from that date. I do not think that this argument can be accepted, at least as to construction although it may have more bearing on the question of rectification. Clause 2.1 is not really an operative provision but a recital. It is clause 4 which provides the grant of the option and the method of exercise during the option period. I think it impossible to hold that where the option period states that this means a period of 12 months commencing on a particular date that the deed properly construed means that the option period is one of nine months commencing on that date and that a construction to the contrary is absurd. The cases relevant to the determination of the meaning of a contract where there is a clear mistake giving rise to an absurd as opposed to unreasonable construction are I consider quite different from the claim put forward here. See Fitzgerald v Masters (1956) 95 CLR 420; Watson v Phipps (1985) 60 ALJR 1; Cooper Brookes (Wollongong) Pty Limited v Commissioner of Taxation (1981) 147 CLR 297. Rectification 23 To some extent the argument of the defendant based on the terms of the letter of 9 January is contrary to the claim for rectification. In the letter the period of three months and the period of 12 months all refer to "the date of grant of the option" and on no basis could that mean the date of the option where that deed has been backdated. 24 As I discussed during submissions, it seems to me that if the cross-claim for rectification were to succeed then to do equity the cross-claimant would have to accept that the date of the deed should be 22 August 2005, rather than 1 July 2005. For obvious reasons the cross-claimant is not prepared to agree to that. Secondly, leaving aside that argument, there is no evidence that there was any authority given by either the grantor or grantee of the option to date the document 1 July 2005. While solicitors have authority to exchange contracts and to fill in dates relevant to exchange of contracts, in my view it is clear that they do not have authority to insert a date which is not a true date. That is another reason why rectification as claimed by the defendant could not be granted. There is no pleaded claim of or any evidence of ratification by Mr James on behalf of Print National of the date in the document. If he did notice it then he gave notice of exercise within the time specified as the option period. If the true date was 23 August 2006, then even if the option did expire 12 months from the date of the agreement it was exercised within time. There is no evidence of authority or ratification on behalf of Veritage. Common mistake 25 The evidence of Mr James is that there was no mistake on his part. He said that he read the definition of option period prior to executing the document on behalf of the grantee. There is no evidence of the grantor on this matter. On any basis there is no evidence of common mistake. Unilateral mistake 26 So far as unilateral mistake is concerned, the same position applies. It does not really matter what took place after the actual date of the grant. While Mr Brooks did not give evidence I do not think it possible to draw the inference that he, acting as agent for the grantee, considered that there was an error prior to forwarding the copy signed by the grantee back to the grantor's solicitors and that he purposely refrained from informing the solicitor for the grantor of this. I find Mr James was not guilty of such conduct. There is no evidence that the grantor did not read the document and consider it prior to its execution and delivery. There is no evidence the grantor believed that a term limiting the option period to 12 months was intended to be or was included. In my view the claim for rectification must fail. 27 I should add that while I expressed some doubt, I accept that the words "the date of this deed" in general mean the date which the deed is dated rather than the date of the making of the deed, illogical though that may seem. However Styles v Wardle (1825) 4 B&C 908; 107 ER 1297, which is usually taken as the starting point for this principle proceeds on the basis that "a party executing a deed agrees that the day therein-mentioned shall be the date for the purposes of computation". Here the parties agreed to no such thing, as there was no date on the deed. The case of Strickland v Grieve (1995) 7 BPR 14,376, supports this understanding of Styles v Wardle. In any event those decisions can make no difference in this case. Whether or not the parties meant to limit the period to 12 months rather than 15 months from the date of the agreement, they certainly did not mean to reduce it to a period of slightly more than 10 months. 28 It follows from this that the plaintiff is entitled to an order for specific performance and the cross-claim should be dismissed. The claim for damages could not succeed and was not pressed. Proposed Declarations and Orders

1. Declare that the option deed bearing date 1 July 2005 executed by the defendant is valid and enforceable by the plaintiff.

2. Declare that the plaintiff has validly exercised the option.

3. Order that the contract arising on exercise of the option be specifically performed.

4. Order that in the absence of agreement the Registrar give directions as to times and places and other matters to bring about completion.

6. Order that the defendant pay the plaintiff's costs of the claim and cross-claim.

8. Liberty to apply as to implementation of these orders. **********

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.