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- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
Hilas & Anor v GGPG Developments (No 133) Pty Ltd & Anor  QSC 313
LEONIE CHRISTINA HILAS
GGPG DEVELOPMENTS (NO. 133) PTY LTD ACN 626 678 840 AS TRUSTEE FOR PARK RIDGE 133 UNIT TRUST
MARC ANDREW CLANCY
Supreme Court at Brisbane
7 October 2020
2 October 2020
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – MATTERS NOT GIVING RISE TO BINDING CONTRACT – VAGUENESS AND UNCERTAINTY – CERTAINTY AS TO PRICE – where the parties entered into a put and call option deed for the acquisition by the first respondent of certain property – where the deed was varied to extend the time for exercising the options under the deed – where the variation did not address the purchase price in relation to the options – whether the deed was uncertain as to the purchase price of the call option
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – OFFER – OPTION FOR VALUABLE CONSIDERATION OR UNDER SEAL – EXERCISE OF OPTION – METHOD OF EXERCISE – where the applicants gave a notice of exercise of the put option under the deed – where the applicants also enclosed an executed contract, which was not required under the deed – whether the notice of exercise of option was valid and effectual
Banque Brussells Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Limited  AC 749
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
Willmott v McLeay  QCA 84
York Air Conditioning and Refrigeration (A/Asia) Pty Ltd v The Commonwealth (1949) 80 CLR 11
G Handran with D Fawcett for the applicants
K E Downes QC with L V Sheptooha for the respondents
Mahoneys for the applicants
Nicholsons Solicitors for the respondents
- The applicants are the registered owners of a property situated at 133-159 Park Ridge Road, Park Ridge, Queensland.
- On 5 July 2018, the applicants and GGPG Developments (“the Company”) entered into a put and call option deed for the acquisition by the Company (or its nominee) of the property (“the Deed”). The second respondent, Mr Clancy, is the sole director of the Company.
- Under the Deed, the Company was granted a call option and the applicants were granted a put option over the property. The Company contemplated developing the property into a residential subdivision of low to medium density. The call option was granted by the applicants as grantors to the Company as grantee under cl 3 of the Deed:
“3 Call Option
3.1 In consideration of payment of the Initial Security Deposit by the Grantee to the Grantor (the receipt of which is hereby acknowledged), the Grantor grants to the Grantee an option to buy the Property from the Grantor free from all Encumbrances whatsoever except as otherwise provided in accordance with this Deed and the Contract.
3.2 The Grantee must pay the:
- (a)Initial Security Deposit to the Grantor within 2 Business Days of the date of this Deed; and
- (b)Further Security Deposit to the Grantor within 2 Business Days of the date of the Due Diligence Condition is fulfilled or the benefit of it waived by the Grantee.
3.3 The Call Option may be exercised at any time during the Call Option Period but only if the Due Diligence Condition is fulfilled or waived and the Security Deposit has been paid as required under this Deed. Having been given or valuable consideration it is declared to be irrevocable until that time
3.4 The Call Option may be exercised by the Grantee or its nominee delivering to the Grantor:
- (a)a notice in writing (on terms substantially similar to those in Schedule 1) confirming the exercise of the Call Option;
- (b)a notice in the form of Schedule 2 executed by the Grantee and nominee, if the Call Option is exercised by a nominee of the Grantee;
- (c)the Contract signed by the Grantee or nominee, in duplicate, complete as to the:
- (i)particulars of the Grantee, or nominee, as buyer;
- (ii)the purchase price which will be:
A $21,700,000, if the Call Option is exercised such that the contract will settle on or before the date which is 12 months from the date of this Deed; or
B if the Call Option is exercised such that the contract will settle on a date which is between 12 months and 24 months after the date of this Deed, $21,700,000 increased to a maximum of $22,500,000, such increase to be apportioned on a daily basis over a 12 months period; [Example: If this deed was dated 17 April 2018 and the Call Option is exercised on 25 September 2019, such that settlement is due on 25 October 2019, the Purchase Price will be $21,700,000 + [191 (the number of days from 17 April to 25 October)/365] x $800,000 + $21,700,00 + $418,630 + $22,118,630];
- (iii)the settlement date being 30 days from the date the Call Option is exercised;
- (iv)the guarantee attached to the Contract properly executed by the Grantee’s director as guarantor; and
- (d)where the Call Option is exercised by a nominee of the Grantee (or nominees whether or not including the Grantee):
- (i)a form of nomination on terms substantially similar to those in schedules 1 and 2 duly executed by the Grantee and the nominee; and
- (ii)the guarantee attached to the Contract properly executed by the Grantee and the Grantee’s director as guarantor.
3.5 The Grantee acknowledges and agrees that the exercise of the Call Option will not be effective if the Grantee does not comply with clause 3.4 in all respects.
3.6 Notwithstanding clause 11, for the purpose of this clause, notice of the exercise of Option will not be effected until receipt by the other party or their solicitor.
3.7 The notices referred to in this clause must be signed by the Grantee or the nominee or on behalf of the Grantee or the nominee, or by the solicitor of the Grantee or the nominee who has authority to bind the Grantee or nominee, or where the Grantee or nominee is a corporation by any director or executive officer as defined by the Corporations Act having authority to bind the corporation. Any solicitor, attorney, director or executive officer who gives notice in the terms of this clause hereby warrants to the Grantor that they have the necessary authority to do so.”
- Clause 4 of the Deed granted the applicants a put option:
“4 Put option
4.1 In consideration of payment of the Put Option Fee by the Grantor to the Grantee (the receipt of which is hereby acknowledged), the Grantee grants to the Grantor an option to sell the Property to the Grantee free from all Encumbrances whatsoever except as otherwise provided in accordance with this Deed and the Contract.
4.2 The Put Option may be exercised at any time during the Put Option Period and having been given for valuable consideration is declared to be irrevocable until that time.
4.3 The Put Option may be exercised by the Grantor delivering to the Grantee a notice in writing (on terms substantially similar to those in schedule 1) exercising the Option.
4.4 If the Put Option is exercised:
- (a)the settlement date will be 30 days from the date the Put Option is exercised; and
- (b)the Purchase Price will be $22,500,000.
4.5 Notwithstanding clause 11, for the purpose of this clause, notice of the exercise of Option will not be effected until receipt by the other party or their solicitor.
4.6 The notice referred to in this clause must be signed by the Grantor or on behalf of the Grantor, or by the Grantor’s Solicitor who has authority to bind the Grantor, or where the Grantor is a corporation by any director or executive officer as defined by the Corporations Act having authority to bind the corporation. Any solicitor, attorney, director or executive officer who gives notice in the terms of this clause hereby warrants to the Grantee that they have the necessary authority to do so.”
- Clause 5 of the Deed dealt with the exercise of the put option and the call option:
“5.1 Immediately on exercise of either Option as provided in this Deed the terms, covenants and conditions contained in the Contract will come into force an effect between the Grantee and the Grantor and will be binding upon the Grantor as seller, the Grantee as buyer or guarantor and the Grantee’s director as guarantor as the case may be.
5.2 The date of the Contract for the purposes of the Contract will be deemed to be the date on which the Option is exercised in accordance with this Deed.”
- Clause 16 of the Deed is headed “Further assurance” and provides:
“The parties agree and agree to procure every other person as required to sign all documents and otherwise do all such acts, matters and things as may be necessary or desirable to give full force and effect to this Deed.”
- Schedule 1 to the Deed is the Notice of Exercise of Option form. Schedule 2 is the Nomination Notice form. The Deed was executed by the applicants and the Company by the signature of Mr Clancy as the sole director. Annexure 1 to the Deed is a contract for houses and residential land (“the Sale Contract”) which named the applicants as the sellers and is blank as to the name of the buyer. The buyer could be the Company or its nominee. The Sale Contract annexed to the Deed was not executed by the applicants as sellers. It was, however, executed by Mr Clancy as “buyer”.
- Under the heading “Special Conditions”, the Sale Contract refers to Annexures 1 and 2. Annexure 1 contains special conditions and Annexure 2 is a guarantee and indemnity. Mr Clancy as well as signing (and initialling each page of) the Sales Contract also signed the special conditions. In relation to Annexure 2, the guarantee and indemnity, Mr Clancy initialled each page and executed the guarantee and indemnity as sole director of the Company as guarantor and in his own right as guarantor. There is no apparent reason why Mr Clancy executed the Sale Contract and the two annexures to the Sale Contract, including the guarantee and indemnity. Mr Hawthorn, a member of Nicholsons Solicitors, deposes in an affidavit filed 29 September 2020 that he is informed by Mr Clancy and verily believes that the signatures which appear on those documents appear to be those of Mr Clancy. Mr Clancy did not, however, intend to sign the annexures to the Deed and he believes that he signed those documents by mistake. Mr Clancy believes that this occurred when he proceeded to execute each page of the document which included the annexures, without the assistance of a solicitor advising him which pages he was required to sign. No term of the Deed required any party to execute Annexure 1 to the Deed at the time the Deed was entered into.
- The Deed has been varied by five deeds of variation dated 23 August 2018, 26 March 2019, 26 September 2019, 12 February 2020 and 9 June 2020. It is the fifth variation of 9 June 2020 that is relevant for present purposes (“the Fifth Variation Deed”). Before I discuss the Fifth Variation Deed, certain definitions in the Deed should be noted. Clause 6 of the Deed deals with due diligence. The Company was required to give written notice to the applicants by the “due diligence date” that the due diligence condition had either been fulfilled or the benefit of it waived. The term “due diligence date” was defined as “the date which is 30 business days after the date of this deed”. The term “call option period” is defined as “the period from the day after the fulfilment or waiver of the due diligence condition until the call option expiry date”. On 20 March 2019, the Company waived the benefit of the “due diligence condition” under the Deed and accordingly the “call option period” commenced on 21 March 2019 and was open until the “call option expiry date”. The term “call option expiry date” was defined to mean the date 23 months from the date of the Deed, being 5 June 2020. Under the Deed, the “put option period” commenced on the day after the “call option expiry date” and was open for 30 days from the “call option expiry date”. It follows that the “call option period” under the Deed was from 21 March 2019 to 5 June 2020 and the “put option period” under the Deed was from 6 June 2020 to 5 July 2020.
- It is uncontroversial that neither the call option nor the put option was exercised during those relevant periods. Rather, on 9 June 2020, after the expiry of the original call option period, the applicants and the Company entered into the Fifth Variation Deed. By the Fifth Variation Deed:
● The “call option expiry date” was extended from 5 June 2020 to 4 September 2020 (with the effect of extending the “call option period” to that date).
● The Company’s obligation to pay an instalment of the further security deposit (cl 3.2(b)(iv)) was further amended so as to be paid in smaller instalments (all of which were acknowledged as received between 28 February 2020 and 30 April 2020).
● The Company was to pay (under new cl 3.2(f)) $25,000 by 28 February 2020 (receipt of which was acknowledged) as compensation “for any inconveniences caused by the company’s extension”.
● The Company was to pay (under new cl 3.2(g)) $120,000 by 9 June 2020 as compensation “for any inconveniences caused by the company’s extension”. This sum was paid to the applicants on 9 June 2020.
● The Company warranted (under new cl 22.4) to continue to progress its development application.
● The Company was to provide (under new cll 22.5 and 22.6) written updates of the progress of its development application which it did on 12 and 26 June, 10 and 24 July and 7 and 24 August 2020.
- These variations replaced the “call option expiry date”, meaning that the “call option period” expired on 4 September 2020. This variation had the effect of suspending, until 5 September 2020, the recommencement of the put option period and, therefore, the next occasion on which the applicants could compel a sale. The Fifth Variation Deed did not seek to address the purchase price in relation to the call option or the put option under the Deed. Clause 3.4(c)(ii)B (quoted above) provides that if the call option is exercised such that the contract will settle on a date which is between 12 months and 24 months after the date of the Deed, the purchase price of $21,700,000 under cl 3.4(c)(ii)A is increased to a maximum of $22,500,000, such increase to be apportioned on a daily basis over a 12 month period. The Deed was entered into on 5 July 2018. As the call option expiry date was extended to 4 September 2020, the call option could be exercised by the Company or its nominee after 5 July 2020 (that is, more than 24 months after the date of the Deed).
- On 3 September 2020, which was the day before the call option period expired, the solicitors for the Company wrote to the solicitors for the applicants in the following terms:
“We confirm the parties entered into a put and call option deed dated 5 July 2018 (Deed).
The Deed has been varied on a number of occasions, the last of which provides that the call option period expires on 4 September 2020. At no time has clause 3.4 been varied by the parties.
The Deed is void for, amongst other things, the reasons identified in this letter and given that our client cannot obtain the benefit of the call option granted to it under the Deed.
To further clarify, the Deed is fundamentally deficient in failing to provide for a purchase price, being an essential term of the Contract, where settlement of the contract occurs after 24 months from the date of the Deed.
To that end, clause 3.4(c)(ii) of the Deed provides the mechanism by which the purchase price in the contract is to be calculated in the event settlement of the contract occurs within 1 months from the date of this deed (clause 3.4(c)(ii)A) and within 12 months and 24 months from the date of the Deed (clause 3.4(c)(i)B). Here, our client’s exercise of the option (if that occurred tomorrow, being the last day of the expiry of the call option period), would mean the contract would settle after 24 months from the date of the deed, and no purchase price is contemplated under the Deed in this event.
Accordingly, our client cannot exercise the call option strictly in accordance with the provisions of clause 3.4. Not only that, there is, on any objective view, no agreement between our clients as to the purchase price such that our client cannot deliver a contract to your client in the form as contemplated by clause 3.4(c) of the Deed.
On that basis, the Deed itself is void ab initio.”
- The Company, in the same letter, called for the repayment of the security deposits paid under the Deed as varied and “inconvenience fees” paid under the variations to the Deed.
- On 10 September 2020, the solicitors for the applicants wrote to the Company in the following terms:
“We act for the seller pursuant to a put and call option deed dated 5 July 2018 and hereby enclose our client’s notice of exercise of option and contract.”
- The Notice of Exercise of Option dated 10 September 2020 reads:
“To: GGPG Developments (No. 133) Pty Ltd ACN 262 678 840 as trustee for Park Ridge 133 Unit Trust
Christos Hilas and Leonie Christina Hilas exercise the option granted pursuant to the Put and Call Option Deed between Christos Hilas and Leonie Christina Hilas and GGPG Developments (No. 133) Pty Ltd ACN 262 678 840 as trustee for Park Ridge 133 Unit Trust dated 5 July 2018 to require the entering into of the Contract for the purchase of the property described as 133-159 Park Ridge Road, Park Ridge.”
- This Notice of Exercise of Option is substantially in the form of Schedule 1 of the Deed and on its face is executed by each of the applicants. The Notice of Exercise of Option identifies the requirement for the Company to enter into “the Contract for the purchase of the property”. The word “Contract” is defined in the Deed as “the contract annexed to this Deed”. The contract, together with Annexure 1 and 2, which includes the guarantee and indemnity as previously executed by Mr Clancy for the Company and in his own right, was forwarded with the Notice of Exercise of Option. Unlike the contract annexed to the Deed, the contract sent on 10 September 2020 had been executed and initialled by the applicants on 10 September 2020, gave details of both the Company as buyer and the buyer’s solicitor, and states the purchase price as $22,500,000 and deposit as $1,125,000.
- The solicitors for the applicants also sent a further letter on 10 September 2020 in the following terms:
“With respect, we disagree that the option deed (as made or by reason of the variation deeds) is void. Applying commercial common-sense to construction of the option deed according to its text, context and purpose, the purchase price of the call option is sufficiently certain. We also note clause 18 of the deed.
In any event, the put option is, ex facie, certain. Our clients have exercised their put option.”
- Clause 18 of the Deed deals with severance.
- In correspondence dated 15 September 2020, the solicitors for the Company affirmed that the Deed was void ab initio and the total of all security deposit amounts and “inconvenience fees” should be repaid in full. The letter continued:
“So that we can better understand the position of your clients, kindly (and without limitation) identify what your clients say is the purchase price by reference to (and identifying each with meaningful precision) the text, context and purpose which gives rise to that construction.”
- By letter dated 21 September 2020, the solicitors for the applicants foreshadowed that the applicants would be proceeding with an originating application seeking a declaration that they validly exercised the put option on 10 September 2020. The applicants did not accept that the proceeding ought to have been commenced by claim:
“The proceeding is narrow. It is a question of law (being the construction of the option deed, as varied) and the evidence is wholly documentary (being the option deed, the variation deeds and the notice of exercise), not voluminous and already notorious to both parties and their solicitors.”
- The letter of 21 September 2020 also identified that there was “genuine urgency” in having the matter determined by the Court as the settlement date under the contract (assuming that the applicants validly exercised the put option) is 10 October 2020.
The competing applications
- In the above context, the applicants filed an originating application on 23 September 2020 which seeks the following relief:
“Pursuant to s 10 of the Civil Proceedings Act 2011 (Qld), or alternatively in this Honourable Court’s inherent jurisdiction, it be declared that the applicants’ delivery of the Notice of Exercise of Option dated 10 September 2020 was valid and effectual.”
- On 29 September 2020, the respondents filed an application seeking orders pursuant to r 14 of the Uniform Civil Procedure Rules 1999 (Qld) that the proceeding continue as if started by claim and for directions for the conduct of the proceeding.
- It is convenient to deal first with the applicants’ originating application.
- The applicants submit that the only question before the Court is whether the Deed (as varied) was uncertain as to the purchase price of the call option. According to the applicants, this is a question of law which may be determined summarily by originating application as no disputed facts arise. The respondents do not accept that the put option was validly exercised primarily because, upon the proper construction of the Deed as varied by the Fifth Variation Deed, the parties had failed to agree upon the purchase price to be paid by the Company or its nominee if the call option was exercised. The respondents submit:
“Without any agreement about the Purchase Price, GGPG Developments was not, in truth, granted a call option which it could exercise validly.
The conclusion which the Respondents would press at trial is that the Variation Deed is void for uncertainty because it contains no purchase price (or an uncertain price) for the Property under the Deed’s call option.”
- Whether there was certainty as to price for the exercise of the call option may be resolved by a proper construction of the Deed as varied. The applicants do not rely on any extrinsic facts in construing the Deed and the Fifth Variation Deed. These deeds constitute a commercial contract between the parties. The principles as to the construction of such a contract are well established. In Electricity Generation Corporation v Woodside Energy Ltd, French CJ, Hayne, Crennan and Kiefel JJ observed:
“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties ... intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”
- In York Air Conditioning and Refrigeration (A/Asia) Pty Ltd v The Commonwealth, Williams J stated:
“If the court comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise. In Scammell and Nephew Ltd v Ouston Lord Wright said ‘the object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation . . . it is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain.’ In Hillas & Co Ltd v Arcos Ltd Lord Tomlin, referring to the words ‘of fair specification’ said ‘that is something which if the parties fail to agree can be ascertained just as much as the fair value of a property.’ Lord Thankerton said ‘I am affected by the consideration that the contract is a commercial one and that the parties undoubtedly thought that they had concluded a contract’. Lord Wright referred to ‘the legal implication in contracts of what is reasonable, which runs throughout the whole of modern English law in relation to business contracts . . . it is unnecessary, in my judgment, to multiply illustrations of this principle, which goes far beyond matters of price. After all, the parties being business men ought to be left to decide what degree of precision it is essential to express in their contracts, if no legal principle is violated’.”
- The applicants also rely on the observations of Rogers CJ Comm D in Banque Brussells Lambert SA v Australian National Industries Ltd:
“The whole thrust of the law today is to attempt to give proper effect to commercial transactions. It is for this reason that uncertainty, a concept so much loved by lawyers, has fallen into disfavour as a tool for striking down commercial bargains. If the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable.”
- As outlined above, cl 3.4(c)(ii) deals with the purchase price in respect of the call option. The price was $21,700,000 if the call option was exercised such that the contract would settle on or before 12 months from the date of the Deed, which was 5 July 2018. The relevant date for the purposes of cl 3.4(c)(ii)A was therefore 5 July 2019. Clause 3.4(c)(ii)B set out a formula that would apply if the call option was exercised such that the contract would settle on a date between 12 months and 24 months after the date of the Deed (that is, between 5 July 2019 and 5 July 2020). The purchase price would increase from $21,700,000 on a daily basis to a maximum of $22,500,000. This maximum purchase price was also the purchase price if the put option was exercised.
- I have already summarised the terms of the Fifth Variation Deed above, none of which dealt with price at all. The Fifth Variation Deed deleted cl 1.1(c) of the Deed which defined “call option expiry period” as being the date which is 23 months from the date of the Deed. That definition was replaced with the date 4 September 2020. In effect, the call option could be exercised by the Company until 4 September 2020. By cl 2.1(d) of the Fifth Variation Deed, a new cl 3.2(g) was inserted in the Deed requiring the Company, as grantee, to pay to the applicants, as grantors, an amount of $120,000 by 9 June 2020, by way of compensation for any inconveniences caused by the extension.
- The respondents submit that no purchase price was agreed if the Company exercised the call option in circumstances where the Sale Contract would settle after 5 July 2020. As the Fifth Variation Deed extended the call option expiry date to 4 September 2020, “the put and call option periods under the Deed were not validly extended and the Purported Notice given pursuant to the Variation Deed is ineffective. The put and call options under the Deed have thereby lapsed completely, with the consequence that the Applicants have not validly exercised their put option”. The respondents do not suggest that the Fifth Variation Deed created any uncertainty in relation to the purchase price if the put option was exercised. Rather, as is reflected in the respondents’ correspondence from their solicitors of 3 September 2020, the uncertainty as to purchase price arose in the context of the respondents seeking to exercise the call option.
- I do not accept the respondents’ submission that the Deed as varied was incomplete, in that it was uncertain as to price. As originally defined, the term “call option expiry date” contemplated that the Company could exercise the call option within 23 months from 5 July 2018 (that is, by 5 June 2020). If the call option was exercised any time after 5 June 2020, settlement (which was within 30 days) would occur more than 24 months from the date of the Deed. In accordance with cl 3.4(c)(ii)B of the Deed, if settlement occurred more than 24 months from the date of the Deed, the maximum price of $22,500,000 would apply. The Fifth Variation Deed, in extending the call option expiry date to 4 September 2020, did not need to deal with the question of purchase price. This was because, when the Fifth Variation Deed was entered into on 9 June 2020, the Company had not exercised the call option within the call option period which expired on 5 June 2020, and by operation of cl 3.4(c)(ii)B the maximum purchase price of $22,500,000 had been reached. The Company, after 5 June 2020, could not exercise the call option to obtain any reduction from the maximum purchase price of $22,500,000.
- The applicants submit, and I accept, that a reasonable business person in the position of the parties at the time the Fifth Variation Deed was entered into on 9 June 2020 would have known and understood the following matters:
- (a)Before the Fifth Variation Deed was entered into, the call option was incapable of being exercised. Clause 3.2 of the Deed required the Company to pay, prior to exercising the call option, an initial security deposit and a further security deposit. As to the further security deposit required by cl 3.2(b), the dates by which it had to be paid were varied by the second, third and fourth variation deeds so that the further security deposit became payable by 18 November 2019. By cl 2.1(b) of the Fifth Variation Deed, the requirement was that the further security deposit (which had a balance of $375,000) be paid in three instalments on 28 February, 31 March and 30 April 2020. The Company was therefore incapable of exercising its call option until the parties entered into the fifth variation on 9 June 2020.
- (b)The only purchase price payable under the call option at the time of the Fifth Variation Deed was the maximum of $22,500,000.
- (c)The only option capable of being exercised when the Fifth Variation Deed was entered into was the put option, with a purchase price of $22,500,000.
- (d)The Fifth Variation Deed afforded the Company an opportunity to exercise the call option up until 4 September 2020 but also delayed the potential exercise of the put option (until 5 September 2020 at the earliest) by the applicants.
- (e)As varied, the call option could only ever be exercised in a period where no discount to the maximum purchase price was available. Moreover, no variation was made to cl 3.4(c)(ii)B so as to afford the Company with any further opportunity to secure any reduction in the maximum purchase price.
- (f)The Company, in the Fifth Variation Deed, agreed to pay $120,000 to compensate the applicants for the “inconvenience” caused by the extension. Unlike the security deposit, compensation was not credited as a payment towards the purchase price at settlement. Clause 2.1(d) of the variation deed referred to the amount of $120,000 as becoming “the property of the Grantor absolutely immediately upon receipt by the Grantor and is not refundable in any circumstances”. The payment accordingly had the effect that the applicants were to be paid $120,000 more than the purchase price payable upon the exercise of either option.
- To give commercial sense to the Deed and the Fifth Variation Deed, the purchase price under the call option could only have been understood by the parties to be the maximum of $22,500,000. There was, in my view, no uncertainty as to price that rendered the Company incapable of exercising the call option at that purchase price prior to 4 September 2020.
Was the Notice of Exercise of Option dated 10 September 2020 otherwise valid and effectual?
- When one speaks of validity in relation to a contractual notice, the enquiry is whether the notice was given in accordance with the contract. The approach to the construction of such a notice is set out in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Limited where Lord Steyn observed:
“The construction of the notices must be approached objectively; the issue is how a reasonable recipient would have understood the notices. The notices must be construed taking into account the relevant objective contextual scene. The enquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. … Even if notices under contractual rights contain errors, they may be valid if they are ‘sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate’. … The reasonable recipient should be left in no doubt what right is being exercised.”
- Clause 4.3 of the Deed provided that the put option could be exercised by the applicants delivering to the Company a notice in writing (on terms substantially similar to those in Schedule 1) exercising the option. I have already outlined above the terms of the Notice of Exercise of Option. There is no suggestion that the terms of the notice are not “substantially similar” to those in Schedule 1 to the Deed. By cl 5.1 of the Deed, the effect of exercising the put option was as follows:
“Immediately on exercise of either option as provided in this deed to the terms, covenants and conditions contained in the Contract will come into force and effect between the Grantee and the Grantor and will be binding upon the Grantor as seller, the Grantee as buyer or guarantor and the Grantee’s director as Guarantor as the case may be.”
- By cl 16 of the Deed, the parties agreed to procure every other person as required to sign all documents and otherwise do all such acts, matters and things as may be necessary or desirable to give full force and effect to the Deed. Under cover of letter dated 10 September 2020, the solicitors for the applicants enclosed the Notice of Exercise of Option and the executed contract.
- As I have observed above, the word “Contract” is defined in the Deed to mean the contract annexed to the Deed. Annexure 1 to the Deed was the relevant contract. Annexure 2 to the contract was the guarantee and indemnity. Nothing in the Deed necessitated the second respondent either initialling or signing the Sale Contract, nor the guarantee and indemnity. The second respondent asserts that he signed these documents by mistake. There was however no contractual requirement for those documents to be executed at all. The Sale Contract and guarantee took effect in accordance with the terms of the Deed. The terms of the Sale Contract came into force and effect between the parties and were binding on the parties immediately on exercise of the put option. Clause 5.2 of the Deed identified that the date of the Sale Contract is deemed to be the date on which the option was exercised in accordance with the Deed. That date is 10 September 2020.
- Nothing in the terms of cl 4.3 required the applicants, in exercising the put option, to deliver an executed contract. The fact that the covering letter enclosed both the Notice of Exercise of Option and the Sale Contract does not, in my view, affect the validity of the put option. On its face, the Notice of Exercise of Option was a document that was in terms substantially similar to those in Schedule 1 to the Deed.
- The guarantee and indemnity attached to the Sale Contract and enclosed under the covering letter is a guarantee by both the Company and the second respondent in relation to a contract alleged to exist between the applicants and the Company and not a nominee of the Company. The only circumstance in which the Company would be required to provide a guarantee in the form of Annexure 2 to the Sale Contract is if its nominee became the purchaser and it exercised the call option. There is no circumstance in which the second respondent could be compelled to provide a guarantee in circumstances where the applicant exercised the put option. The second respondent was not a party to the Deed. The respondents therefore identify that there is a real issue as to whether the guarantee is enforceable against either of the respondents. This issue does not however, in my view, affect the validity of the Notice of Exercise of Option dated 10 September 2020. The notice on its face complies both with cll 4.3 and 4.6 of the Deed. Clause 4.6 requires the notice to be signed by the grantor or on behalf of the grantor or by the grantor’s solicitor who has authority to bind the grantor. The notice appears to be signed by both applicants.
- Even though the covering letter enclosed both the Notice of Exercise of Option and the contract, the Company, as the reasonable recipient of the notice, must have appreciated that the applicants were giving notice of an exercise of the put option in accordance with cl 4.3 of the Deed and in the form of Schedule 1 to the Deed.
- The applicants are therefore entitled to the declaratory relief sought.
The respondents’ application
- The respondents resist the proceedings being determined by originating application on a number of bases. First, it is submitted that the proceedings raise complex issues of law. As outlined above, the validity or otherwise of the Notice of Exercise of Option is resolved upon a proper construction of the Deed as varied. In Willmott v McLeay Holmes JA (as her Honour then was) with whom Fraser and White JJA agreed, identified that questions of the construction of contracts are appropriate to be dealt with summarily, unless it is an exceptional case where the questions of law are of such difficulty that an applications judge faced with inadequate submissions and a lack of assistance as to authority cannot resolve them. That is not the situation the Court is faced with on the present application.
- Secondly, the respondents submit that the proceeding could also require the resolution of factual issues arising in relation to the execution of the guarantee by the second respondent by mistake. As discussed above, while this may constitute a real issue as to the enforceability of any guarantee in respect of the Company and Mr Clancy, this factual issue does not affect the Court’s finding as to the validity of the Notice of Exercise of Option dated 10 September 2020. As to the Company’s claim in restitution for the payment of the $120,000 pursuant to the deed of variation dated 9 June 2020 and the payments of security deposits, these claims are founded on the assertion that the Deed as varied is void for uncertainty as to price. As I have determined that there was no uncertainty as to the purchase price, these claims cannot succeed.
- The Court declares that the applicants’ Notice of Exercise of Option dated 10 September 2020 delivered to the first respondent was valid and effectual.
- The respondents’ application filed 29 September 2020 is dismissed.
- The Court will hear the parties as to costs.
Outline of Submissions of the Respondents, paras 43 and 44.
(2014) 251 CLR 640 at 656-657, ; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 116-117, -.
(1949) 80 CLR 11 at 26.
(1989) 21 NSWLR 502 at 523.
Outline of Submissions of the Respondents, para 45(a).
Applicants’ Outline, para 21(a)-(g).
 AC 749 at 767-768.
 QCA 84 at .
- Published Case Name:
Hilas & Anor v GGPG Developments (No 133) Pty Ltd & Anor
- Shortened Case Name:
Hilas v GGPG Developments (No 133) Pty Ltd
 QSC 313
07 Oct 2020
- White Star Case: