_Vale 1 P/L v Delorain P/L_

[1]

[1] Douglas J: The issue in this case is whether three put and call option deeds between the applicant Vale 1 Pty Ltd as grantee and the respondent developer and grantor of the deeds, Delorain Pty Ltd, constitute "relevant contracts" for the purposes of s 364 and ch 11 of the Property Agents and Motor Dealers Act 2000. If they do create such contracts the consumer protection provisions of the Act would apply as the apartments the subject of each deed were agreed by the parties to be residential property for the purposes of the Act.

[2]

[2] Section 364 defines a "relevant contract" as a "contract for the sale of residential property in Queensland ...". If the consumer protection provisions apply and are not complied with then the Act permits a buyer to terminate the contract, which Vale has purported to do in these cases.

[3]

[3] By cl. 5 of each deed, the grantor granted an option to the grantee to purchase the property but also acknowledged in cl. 6.1 that a buyer may be referred by the grantee to the grantor to buy the lot. The sale was to be on terms annexed to the deed which identified the seller but not the buyer and recognised the grantee's rights to promote the lot for sale at a minimum price. Clause 8 also granted a put option to the grantor to sell the property to the grantee on the terms and conditions of the deed. That option was exercised by Delorain on 20 March 2009 in respect of unit 14 in the particular development dealt with by the deeds in a letter which contained a direction in the form required by the Act.

[4]

[4] In those circumstances, it was Delorain's submission that the substance of the agreements evidenced by the deeds was to facilitate the marketing of the lots by Vale to third party purchasers while the subdivision was being developed and that they could not be characterised as contracts for the sale of those lots to Vale simply because each deed incorporated a put option able to be exercised by Delorain against Vale. That paraphrases the language of Mullins J in Cheree-Ann Property Developers Pty Ltd v East West International Developments Pty Ltd[1].

[5]

[5] The applicant argued that the options were contracts for the sale of residential property even if they were conditional contracts dependent on the performance of the terms of the deeds.

[6]

The proper characterisation of an option - irrevocable offer or unconditional contract

[7]

[6] There is a well-recognised and long standing controversy concerning the nature of an option to purchase land - does the grant of the option create a conditional contract to sell the land or is it an irrevocable offer? The discussion by Gibbs J in Laybutt v Amoco Australia Pty Ltd[2] usefully summarised the competing views and his Honour's conclusion that an option to purchase in a form similar to the option in that case was "a contract to sell the land upon condition that the grantee gives the notice and does the other things stipulated in the option"[3] was referred to by Keane JA in David Deane and Associates Pty Ltd v Bonnyview Pty Ltd[4]. His Honour believed that there was much to be said for the view that the option agreements with which he was dealing did amount to valid and enforceable contracts of sale. He went on to say:[5]

[8]

"Once the machinery conditions in the option agreements became irrelevant to the respective substantive rights of the appellants and Traspunt, the description of the arrangements in the option agreements as a contract of sale was undeniably accurate. What might have originally been characterized as options or contracts relating to a sale or even contracts simpliciter, but not contracts of sale, had become, by the mutual resolution of the contingencies to which they were previously subject, contracts which were properly characterized as contracts of sale and which were, indeed, performed as such."

[9]

[7] In the circumstances his Honour concluded, in deciding that the respondent to that appeal was entitled to its commission as a real estate agent, that, to the extent that the appellants and the other party to the put and call options in that case performed their correlative obligations under those agreements they completed "what had become (if they were not originally) contracts of sale ..."[6]. On his Honour's approach, therefore, it is not a necessary conclusion that an option initially creates a contract of sale even if one accepts that performance of the obligations under the agreement will result in such a contract coming into existence.

[10]

[8] The statutory language in s 364 of the Act refers, however, to a "contract for the sale of residential property"[7]. Whether put and call option deeds created a contract for sale was considered by Philippides J in Mark Bain Constructions Pty Ltd v Barling[8]. Her Honour analysed the relevant provisions of the Act in forming the view that they should apply to the option agreements with which she was dealing and went on to say:

[11]

"It is to be observed that 'relevant contract' is defined in s 364 of the PAMD Act not in terms of a contract 'of' sale, but in terms of a contract 'for' sale.

[12]

Keane JA explained in David Deane & Associates Pty Ltd, how an option or contract relating to the sale of property may, by mutual resolution of the contingencies to which it was previously subject, become properly characterised as a contract of sale. In the present case, even if the option deeds could only be characterised as contracts of sale upon the fulfilment of the contingent conditions to which they were subject, the option deeds are, nevertheless, in my view properly characterised as contracts for the sale of residential property. Although contingent on the exercise of the put and call options granted under the deeds, the applicant assumed obligations to sell and the respondents assumed obligations to purchase from which they could not withdraw. The form and substance of the contracts resulting from the exercise of the options, including the sale price, fell to be determined by reference to the option deeds. The option deeds thus contained the machinery provisions which were facultative of the realization of the lots by sale by the applicant to the respondents. Further, as Barwick CJ observed in Petelin v Deger Investments Pty Ltd, a clause in an option requiring a new contractual document in an identified form to be signed or exchanged does not contemplate the formation of a new and different contract, but merely the recording in a formal fashion of the agreement which resulted from the exercised option.

[13]

The applicant also relied on s 365(1) of the PAMD Act as supporting the proposition that the legislation was not intended to have application to options, it being submitted that, in the case of an option, the parties are not bound to proceed with the sale and purchase of lots until the exercise of the option. Section 365(1) however does not assist the applicant. In the present case, the respondents were obliged, from the date the option deeds were concluded, to proceed with the purchases, if the applicants chose to exercise its put options."

[14]

[9] The respondent sought to distinguish this case from her Honour's decision because of cl. 6 in these deeds allowing Vale to refer buyers to Delorain, not a feature apparent in the deeds in Mark Bain Constructions.

[15]

[10] Mr Handran for the respondent submitted, however, that, unlike the situation in Mark Bain Constructions Pty Ltd v Barling, Vale was not compellable to complete the contract of sale if a buyer was referred in accordance with the deed, so it was not a case where Vale assumed obligations from which it could not withdraw if it introduced another buyer. He argued that the deeds were irrevocable offers to enable Vale to market the apartments knowing it had a fixed price from which to "leverage".[9] He also submitted that any contract resulting from such an introduction would not be a contract for the sale of the property to Vale. He also relied on the observations of Chesterman JA, with which Dutney J agreed, in Headley Commercial Property Services Pty Ltd v BRCP Oasis Land Pty Ltd[10]. There, his Honour said:

[16]

"The appeal was argued on the basis that the deed was a contract for the sale of Lot 203 and if that were residential property the deed was a relevant contract. The deed is obviously not a contract for the sale of Lot 203, or anything else. It is an agreement, having the effect of a deed, which conferred alternate rights on the parties to exercise an option in defined circumstances which would require the respective optionee to execute a contract in identified terms to buy or sell the land. Once the call or put option had been exercised, and the contract executed, a contract for the sale of property would have come into existence; but the deed was not such a contract. The parties conducted the litigation on the convention that the deed was such a contract and both refused adamantly to abandon the convention. The appeal should therefore be determined on the fiction adopted by the parties and these reasons will proceed on the basis that the deed was a contract for the sale of property."

[17]

[11] There was no discussion in that passage of the decision of Mark Bain Constructions Pty Ltd v Barling or of the competing views about the proper characterisation of options. McMurdo P took the view that it was unnecessary to decide whether the deed was a contract for the sale of land in the absence of considered argument. In the circumstances that passage in the judgment could not be said to be binding on me, but, of course, it requires careful consideration.

[18]

[12] In Cheree-Ann Property Developers Pty Ltd v East West International Development Pty Ltd, the decision of Mullins J to which I have already referred, her Honour had to consider a situation similar to this case where the option agreements contemplated that the applicants would endeavour to sell the lots to third parties at a minimum price. In distinguishing Mark Bain Constructions Pty Ltd v Barling, her Honour said:[11]

[19]

"[48] In this matter it is pertinent that the applicants bound themselves to purchase the lots which were the subject of the agreements, if they did not procure sales of the lots to third party purchasers and the respondent then elected to exercise the put options. If the applicants were unable to effect sales of the lots to third party purchasers for the prices stipulated in the agreements, the applicants could be compelled by the respondent to purchase the lots themselves.

[20]

[49] It is also pertinent that each agreement conferred on the relevant applicant a right to procure sales of the specified lots to third party purchasers and a call option that enabled the applicant to require the respondent to enter into a contract for sale of the relevant lot directly with any third party purchaser so procured by the applicant. The constraint on these sales was that the third party contracts had to be for a minimum price that accorded with the purchase price for the relevant lot shown in sch. 2 to the agreement. The benefit for the applicant in procuring such a sale was that the applicant then could not be compelled to purchase that lot and the applicant was entitled pursuant to cl. 3.1 of the agreement to keep any excess paid as purchase price of the lot by the third party purchaser above the price for that lot specified in sch. 2 to the agreement. These provisions of the agreement therefore facilitated the marketing of the lots by the applicants to third party purchasers while the subdivision works were being carried out by the respondent.

[21]

[50] Although each of the agreements included a put option which, if exercised, bound each applicant to purchase the subject lots, the agreement conferred significant rights on each applicant that enabled it to carry on its business as a property marketer in respect of those same lots.

[22]

[51] In applying the definition of "relevant contract", I have had regard to the less restrictive term that is used within the definition of "contract for sale" and the preference expressed in MNM Developments for an interpretation of ch. 11 of the Act that is consistent with the aim of ensuring consumer protection for purchasers of residential property. Even so, I consider it would unduly strain the definition of "relevant contract" in s. 364 of the Act to conclude that an agreement that facilitates the marketing of lots to third party purchasers whilst the subdivision is being developed can be characterised as a contract for the sale of those lots to the marketer, because the agreement also incorporates a put option able to be exercised by the vendor against the marketer. The substance of each agreement was to provide stock for the applicants as property marketers and the agreements cannot be characterised as contracts for the sale of property."

[23]

[13] This case is really on all fours with her Honour's decision in Cheree-Ann Property Developers Pty Ltd v East West International Development Pty Ltd. In my view, it is a decision which should be followed. These deeds did not result in a contract for the sale of the relevant property to a clearly identified buyer. In the performance of the deeds the identity of the eventual buyer depended on the potential exercise of rights under the call option in favour of Vale granted under cl. 5, or by Vale's referral of a buyer under cl. 6 or by Delorain's exercise of its option under cl. 8 after the exercise date. Until the purchaser is identified through that process it is impossible to conclude that a contract for the sale of the property has come into existence.

[24]

[14] Consequently, the application should be dismissed with costs.

[25]

[1] [2006] QSC 182; [2007] 1 Qd R 132, 145 at [51].

[26]

[2] [1974] HCA 49; (1974) 132 CLR 57, 71 - 76.

[27]

[4] [2005] QCA 270 at [22].

[28]

[5] [2005] QCA 270 at [23].

[29]

[6] [2005] QCA 270 at [31].