Thomas Developments v Setlee [2002] NSWSC 816 | Case summary

1 HIS HONOUR: The plaintiff, Thomas Developments Pty Limited, is the owner of land at Colyton. The particular land in question has now been sub-divided into 23 lots. 2 The defendant company, Setlee Pty Limited, entered into separate option agreements with the plaintiff company on 9 October 2001, each of which gave it, as grantee or its nominee, the option to purchase from the plaintiff/grantors one of the lots. The option was to be exercised within five business days after advice was given by the plaintiff's solicitor to the defendant's solicitor of registration of the plan of subdivision. Notification of registration was given on 12 April 2002. It is accepted, therefore, that the expiry date for the exercise of the options was 19 April 2002. 3 On Tuesday 16 April Mr McCann, solicitor, a sole practitioner, but with one client only, Wincrest Homes Pty Limited, contacted Mr Li, the solicitor for Thomas Developments Pty Limited. Setlee Pty Ltd, is a company associated with Wincrest and Mr Li knew that Mr McCann was authorized to deal with him direct on the options. Mr Li and his wife are directors of Thomas Developments Pty Ltd, as is Mr Li senior, the father of the solicitor. 4 According to Mr McCann, he said to Mr Li, the solicitor: "Can we have an extension of the call option period to allow as many of the nominees as possible to purchase? They are awaiting finance approval and understandably their solicitors will not exchange without finance approval. An extension to 3 May 2002 will be enough time." 5 To which he said that Mr Li said: "Put the request in writing. I want to speak to the directors. One is on holidays. I can't see it being a problem." 6 To which Mr McCann said: "Thank you I will send a letter." 7 Mr Li accepts this evidence, apart from the sentence "I can't see it being a problem" which he denies. Mr McCann made a contemporaneous note of their conversation which supported his evidence. I have no doubt that his evidence is correct and I accept it. In other words, I find that the statement, "I can't see it being a problem" was made. 8 The statement made by Mr Li was, in itself, misleading. His reference to a director being on holidays, was to his father who was playing golf either at Cypress Lakes at Pokolbin or at Horizons at Port Stephens. To suggest, as he did in cross-examination, that his father could not be contacted is ridiculous. 9 Mr McCann immediately put his request in writing, stating, inter alia: "We request you seek further instructions for an extension of the call option expiry to 3 May 2002. … the extension period. … We look forward to advice on your instructions herein." 10 Mr Li did speak to his father on that day but nothing came of that. It was apparently accepted they would meet again on 19 April. 11 On 18 April, by a facsimile which was sent about 7 o'clock at night to Mr McCann, Mr Li sent a copy of the registered plan and then in the letter said: "Would you please advise what your clients intentions are with respect to the other lots not mentioned in your facsimile? Does your client intend to exchange these other lots if the call option expiry date is extended two weeks to 3 May 2002?

We await your response." 12 Mr Li agreed in his oral evidence that it was not in the plaintiff's interests to grant an extension. It is, I think, not possible to find that there was ever any intention to do so. His father was angry about the request. 13 Mr McCann came upon the facsimile when he got to the office on 19 April 2002. He immediately responded stating that it was the intention of Setlee Pty Limited to exchange on the remaining blocks and that the two week extension was to allow other parties who were negotiating on the basis they would proceed as nominees, to exchange under the call option agreement. He concluded by saying: "We look forward to receiving your advice in this regard." 14 He got no advice. Mr Li went on holidays. He said that he was busy attending to the rest of his practice and, therefore, did not respond. That, I think, is nonsense. 15 On 30 April he returned from holidays. He wrote saying that the vendor did not agree to an extension of the call option period and that the option had expired. He confirmed that contracts had been exchanged for three lots prior to the expiry of 19 April. 16 Mr McCann wrote a letter on 2 May 2002 which, I think, has little bearing on the matter, other than to show that he was hoping somehow to bring about a purchase by saying that the vendor was bound to put the contracts to Setlee. It is, however, correct to say that he did not state that he considered that an agreement had been entered into for an extension of the time until 3 May or that there was a representation to that effect. In fact, in evidence, he said that it had been made completely clear by Mr Li, by his letter of 30 April, that an extension would not be granted. To some extent that evidence is conflicting but it does not assist the defendant/cross-claimant. 17 The defendant company has entered a caveat against the titles to the lands, the subject of the options. In as far as contracts have not been exchanged, the caveat in its existing form could not be maintained, but nothing really turns on that. If Setlee Pty Ltd does not make out its defence and cross-claim, based on the estoppel by representation or promissory estoppel, the caveat will have to be withdrawn. 18 By defence and cross-claim the defendant company says that the plaintiff represented that the request to extend the time of exercise to 3 May 2002 was agreed to, the representation arising by implication from the conversation and the correspondence, to which I have referred, and by the plaintiff's conduct in not communicating the fact that no extension was agreed to. It is then said that acting in reliance upon that representation, and induced thereby, the defendant did not itself exercise the call options. 19 While there was some cross-examination about this, I accept the evidence of Mr McCann that if advised by Mr Li that an extension of time would not be granted, even at 5.30pm on 19 April, the defendant company would have exercised all the options. It was able to do so. It was able to sign the necessary documents and was able to deliver these to Mr Li. 20 It is said by way of defence, that the plaintiff is not able to say that the option periods have expired as it is unconscionable for it to do so. The only relief sought by amendment to the cross-claim is for a declaration to be made that when on 30 April the cross-defendant refused to extend the time for exercising the options, the cross-defendant was obliged to extend the time for a reasonable time. That is relief sought by way of cross-claim but, I think, it is apparent whether by way of defence or otherwise, that unless the estoppel claim is made out then no relief can be granted to the defendant/cross-claimant. For the moment counsel proceeds on the basis there would be some use in the declaration claimed, although I am not certain that it would be of any benefit, nor do I consider there would be any entitlement to the declaration in the terms sought. 21 In contract terms the world of options is a cold hard world. Experience is that grantors are often the defendants in the matters where a grantee of an option is seeking to enforce it. Experience is that grantors are often sorry that they have entered into options and will do whatever is in their power to prevent the option being exercised. That experience is born out in this case. 22 To make out a claim, as is made by Setlee Pty Limited in this case, it is necessary for it to establish first that there was a clear representation that the terms of the contract would not be relied upon and, second, that it relied on that representation to its detriment. Certainly the detriment is made out. I am of view that there was not a clear representation. The words relied upon and the lack of action thereafter would not, in the ordinary course, create such a representation or amount to a clear statement that an extension would be granted or that unless there was advice to the contrary then the option period was not expired. 23 Mr Li stated that he would obtain instructions. He never responded giving the result of instructions. It was not really put to him that his letter of 18 April was misleading, although it probably was. But even in the letter from Mr McCann, 19 April 2002, referring to the extension requested, the last paragraph said, "We look forward to receiving your advice in this regard." Mr McCann in cross-examination stated that up to 18 April he knew that he did not have any agreement for an extension. He said in cross-examination that this position changed and that as a result of the letter of 18 April he concluded that he did have the agreement for an extension. I do not think that it would be possible to read that letter in that way. He did not speak to Mr Li to ask whether or not an extension was granted after he spoke to him on 16 April. After that, communication was through correspondence. Mr Li did not get back to him to tell him that an extension was not granted. 24 Unconscionability is a matter for the Court of Equity; morals are not. Nobody should think that this Court thinks that a solicitor, who was a director of a company which has been asked for advice as to whether an extension is granted, is acting in a decent professional way in acting in the way that Mr Li acted; he was not. That does not give any relief to the defendant company. 25 I do no consider that the statement made amounts to a representation that an extension would be granted and Mr McCann does not think so either. 26 I do not think that the failure to respond thereafter, in some way by silence, amounted to an acceptance of an extension. Up to 18 April Mr McCann did not think so either. His correspondence of 19 April does not advance the claim and it is contrary to the case now put forward. 27 The letter of 2 May does not in any way assert that there was an agreement for an extension. 28 In those circumstances I find that the case is not made out. There are other difficulties with it. To succeed it would have been necessary for the Court to grant to Setlee Pty Limited relief against forfeiture of its interests under the options. That was not claimed but, in the result, in view of the decision to which I have come, it is not necessary to go into that further. 29 I make the declarations set out in para 7 of the statement of claim. 30 I make the orders set out in para 8, adding the words, after "the defendant", the words "within seven days". 31 (Mr Trebeck addressed on costs.) 32 Mr Trebeck had submitted that there should be no order as to costs because I have made some statement about what I regard as inappropriate conduct in these matters. As I have said, this is not a court of morals, although unconscionably the Court will give relief where unconscionable conduct is involved. I have not concluded there was that conduct in this case. Therefore, the usual order as to costs should be made. 33 I order the defendant/cross-claimant pay the plaintiff/cross-defendant's costs of the proceedings. 34 The exhibits may be returned.

Thomas Developments v Setlee

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