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Elderslie Property Investments No 2 Pty Ltd v Dunn

 

[2007] QSC 372

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Elderslie Property Investments No 2 Pty Ltd v Dunn [2007] QSC 372

PARTIES:

ELDERSLIE PROPERTY INVESTMENTS NO 2 PTY LTD ACN 104 471 276
(plaintiff)
v
RODNEY MELVILLE DUNN AND MARGARET ANN DUNN
(defendant)

FILE NO/S:

BS1635 of 2007

DIVISION:

Trial Division

PROCEEDING:

Claim

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

11 December 2007

DELIVERED AT:

Brisbane 

HEARING DATE:

12-15 November 2007

JUDGE:

McMurdo J

ORDER:

1.Claim dismissed

2.The plaintiff’s caveat dated 8 February 2007 over Lots 3 and 6 be removed

CATCHWORDS:

CONTRACTS -  GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTREPRETATION OF CONTRACTS – OTHER MATTERS – where grant of option to purchase land – where contingent on planning approvals and time limits - where parties contend for different interpretations – where party seeks rectification – whether options exercisable – whether rectification should be ordered – whether relief against forfeiture should be granted

David Deane and Associates Pty Ltd v Bonnyview Pty Ltd [2005] QCA 270, considered

Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380, distinguished

Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, discussed

Legione v Hateley (1982) 152 CLR 406, discussed

McCormick v National Motor & Accident Insurance Union Ltd,  (1934) 49 Ll LR 362, considered

Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga), [1990] 1 Lloyd’s Rep 391, considered

Pukallus v Cameron (1982) 180 CLR 447, considered

Sargent v ASL Developments Ltd. (1974) 131 CLR 634, considered

Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (“The Scaptrade”) [1981] 2 Lloyd’s Rep 425, considered

Taylor v Johnson (1983) 151 CLR 422, cited

Tropical Traders Ltd v Goonan (1963-1964) 111 CLR 41, considered

Troywinds Pty Ltd v Cooper (1989) 1 Qd R 222, considered

COUNSEL:

DC Andrews SC and JH Davies for the plaintiff

DG Clothier for the defendant

SOLICITORS:

Rogers Barnes & Green for the plaintiff

Holding Redlich for the defendants

  1. The plaintiff, which I will call Elderslie, was granted options to purchase lands owned by the defendants, Mr and Mrs Dunn. There were two options in identical terms, respectively for the Dunns’ Lots 3 and 6, which are adjoining parcels of freehold at Rochedale.  Elderslie claims to have validly exercised its options and to be entitled to specific performance of the resultant contracts of sale.  The Dunns say that the options were not exercised within the agreed option period.
  1. Each lot was the subject of a deed between Elderslie and the Dunns described as a Deed of Put and Call Option. There are some differences between the two deeds but none which are material here. Some of the relevant clauses are numbered differently between the deeds and for convenience I shall refer to the deed for Lot 3.  Each deed is dated 21 December 2005. 
  1. The first issue is one of interpretation: according to the terms of the deed by when was Elderslie entitled to exercise its option to purchase? In effect, the Dunns say that the option ceased to be exercisable after 12 months from the deed, that is, after 21 December 2006.  Elderslie says that it was still entitled to exercise the option when it purported to do so on 16 October 2007.
  1. The Dunns say that if their interpretation is not accepted, then the deed should be rectified so that it does have that effect: that being the common intention. Alternatively, they say that the deed should be given that effect on the basis that they mistakenly believed that it did have that effect, as Elderslie knew, thereby relying on Taylor v Johnson.[1]
  1. If any of those arguments is resolved in the Dunns’ favour, Elderslie says that on any of three grounds, its purported exercise of the option should be given effect. The first is that Elderslie was expressly entitled by the deed to unilaterally extend the date for the exercise of its option, which it says it did on 8 February 2007, extending the option period until 21 December 2007.  The Dunns agree that the deed enabled Elderslie to extend the option period, but say that the purported extension was made too late, because it had to be made by 21 December 2006 or within a reasonable time after that date, which had passed by 8 February 2007.  The second argument is that there has been a “forfeiture” of Elderslie’s entitlement to its option, for which it should be given relief.  The third argument is that by reason of certain events in October 2007, the Dunns became estopped from denying that Elderslie was entitled to exercise the option when it did. 

The interpretation issue

  1. From the deed itself, it is plain that Elderslie was interested in buying the land if a particular change to its town planning status could be achieved. That change was described as the Amendment to the Planning Scheme and was defined as follows:

“(b)In this 8.16, ‘Amendment to the Planning Scheme’ means an amendment to the Brisbane City Council Planning Scheme advertised in the Queensland Government Gazette that will enable the Brisbane City Council to issue a Development Approval for the Property and Adjoining Land (as that term is defined in clause 4.1) to be developed in a manner consistent with the development outlined in Annexure B hereto.”

A proposed development was outlined in annexure B which is an advice from a firm of town planners called Urbis JHD.  As that advice recorded, the Brisbane City Council was preparing draft amendments to the Brisbane City Plan to rezone the Dunns’ land and the socalled “AdjoiningLand” to what was described as an InternationalBusinessPark.  The AdjoiningLand was defined to include three neighbouring lots owned by other people.  One of them was Mr Marriage, who is relevant to the rectification case because of his involvement in the contractual negotiations. 

  1. In the deed, Elderslie was called “the Grantee” and the Dunns were called “the Owner”.  By cl 2 of the deed, Elderslie was granted a call option in these terms:

“2.1Call option

In consideration of payment of the Call Option Fee by the Grantee to the Owner, the Owner grants a Call Option to the Grantee to purchase the Property.

2.2Exercise of call option

The Grantee may, at any time during the Call Option Period, exercise the Call Option by delivering to the Owner or its solicitor:

(a)the Call Option Notice duly signed by the Grantee (or if it has nominated some other person or entity pursuant to clause 8.15 hereof the Call Option Notice must be signed by the Grantee’s nominee instead of the Grantee) and;

(b)if the Grantee has nominated some other person or entity pursuant to clause 8.15 hereof, a duly signed Nomination Notice (which may be delivered at any time prior to or contemporaneous with but not later than, when the Call Option Notice is delivered);  and

(c)the Contract, signed in, duplicate, by the Grantee (or, if the Grantee has nominated some other person or entity pursuant to clause 8.15 hereof, with the name of the nominee instead as Buyer, and signed by that nominee).

(d)PAMD Forms.”

By cl 3 of the deed, the Dunns were granted a put option in these terms:

“3.1Put option

In consideration of payment of the Put Option Fee by the Owner to the Grantee (receipt of which is acknowledged), and subject to clauses 4, 5 and 8.16 hereof, the Grantee grants a Put Option to the Owner to require the Grantee to purchase the Property.

3.2Exercise of put option

The Owner may, at any time during the Put Option Period, exercise the Put Option by delivering the Put Option Notice (together with the Contract, signed in duplicate by the Owner) to the Grantee or its solicitors.”

  1. The Call Option Period was defined to mean:

“The period commencing after the date of this Deed and ending at 5 pm on that day which is 14 days from the date the Grantee receives a notice from the Owner or the Owner’s solicitor under clause 8.16 hereof”.

The Put Option Period was defined to mean:

“… the period commencing on that day which is the expiry date of the Call Option Period and ending at 5 pm on that day which is 14 business days from the expiry of the Call Option Period”.

  1. The agreed form of contract to follow from the exercise of either option was annexed to the deed. The form of contract contained a number of special conditions, one of which was:

“2.Settlement Date

(a)Subject to special condition 2(b), the Settlement Date shall be the earlier of the date which is 12 months after the Contract Date or 2 years from the date of the Deed of Put and Call Option entered into between the Seller and Elderslie Property Investments No 2 Pty Ltd and from which this Contract results.

(b)The Buyer may nominate a settlement date earlier than the date referred to in special condition 2(a) by giving at least 1 months written notice to the Seller prior to the date referred to in special conditions 2(a) and the date nominated in that notice will become the Settlement Date.”

The distinction between Elderslie and “the Buyer” was because Elderslie was entitled by the deed to nominate another entity to exercise its option (cl 8.15).  The “Contract Date” was not a defined term.  But the deed effectively made this the date of exercise of the option, by providing that a contract of sale would then be operative (cl 7.1).  The specification of the date two years from the date of the deed, 21 December 2007, as effectively the latest date upon which the contract could be settled, is important for Elderslie’s argument as I will discuss.

  1. The agreed contract price for Lot 3 was $3,600,000 and for Lot 6, $5,800,000.  There was a difference for the form of contract for Lot 6 in that Elderslie was to pay $3,600,000 of that price upon exercise of the option, with the balance at settlement.  The Dunns agreed to mortgage Lot 6 to Elderslie to secure the repayment of that sum if the contract did not settle.  For Lot 3, the price was payable on settlement (save for $25,000 which the deed required as a consideration for the call option but which was to form part of the price). 
  1. I have already set out cl 8.16(b) which defined the expression “Amendment to the Planning Scheme”.  The balance of cl 8.16 was as follows:

“8.16Amendment to the Planning Scheme

  1. Within 7 days after the gazettal of the Amendment to the Planning Scheme, the Owner or its solicitor must notify the Grantee and its solicitor of the gazettal.  If the Amendment to the Planning Scheme will not facilitate the Development Approval, then the Put Option granted to the Owner pursuant to clause 3 hereof shall be deemed never to have been granted and as such the Owner agrees the Put Option may not be exercised by it.
  1. If the Amendment to the Planning Scheme has not been gazetted by the Approval Date determined in accordance with clause 8.16(d), the Put Option granted to the Owner pursuant to clause 3 hereof shall be deemed never to have been granted and as such the Owner agrees the Put Option may not be exercised by it.
  1. The ‘Approval Date’ shall be the date which is 12 months after the date of this Deed provided however that if on the date 12 months after the date of this Deed the Amendment to the Planning Scheme has not been gazetted then the Grantee may extend the Approval Date (on one or more occasions) by a cumulative maximum of 12 months and in this case the extended date shall become the ‘Approval Date’.
  1. In this clause 8.16 ‘Development Approval’ means the development approval for the development outlined in Annexure B hereto.”
  1. Elderslie’s option was exercisable at any time within the Call Option Period. That period began on 21 December 2005, but when did it end?  According to its definition, the period extended until 14 days after a notice from the Dunns under cl 8.16(a).  This indicates that the Call Option Period was effectively defined by the duration of the Dunns’ obligation to give that notice.
  1. Elderslie argues that the Call Option Period was effectively defined by the agreed settlement date in the contract to follow from the exercise of its option. Because that agreed settlement date could be no later than 21 December 2007, Elderslie says that it could exercise its call option at any time up to that date.
  1. The Dunns’ argument focuses upon their put option. They say that the unambiguous intent was that the Call Option Period would expire before the expiry of the Put Option Period, because the latter was defined to commence on the expiry of the former. They say that cl 8.16(c), which provided that the put option would not be exercisable if the Amendment to the Planning Scheme had not been gazetted by the Approval Date, should be read as if it referred both to the put option and the call option.  Accordingly, the Dunns argue, the call option was not exercisable after 21 December 2006, unless some later date was substituted for that as the Approval Date pursuant to cl 8.16(d).  So in the present case, where the Approval Date had not been extended prior to 21 December 2006, the call option was no longer exercisable from that date.  The weakness in the Dunns’ argument is that it requires cl 8.16(c) to be understood differently from its express terms.
  1. But nor is the Elderslie argument compelling: the suggestion that the parties have seen fit to define the Call Option Period not entirely within the definition of that term in the deed, but also by implication from the settlement date in the attached form of contract, seems unlikely. And there is a tension between this argument and the definition of Put Option Period, which unambiguously defines that period as commencing upon the expiry of the Call Option Period. Further, under Elderslie’s argument, the Approval Date would define the Put Option Period but not the Call Option Period, although parties agreed that it was Elderslie which was entitled to extend the Approval Date. There was no apparent purpose in providing Elderslie with a right to extend the date by which the Dunns could exercise their option but where that extension would have no consequence for Elderslie’s option. Elderslie responds that cl 8.16(d) is simply otiose.  And as to the Dunns’ argument that there is an imbalance if their put option, but not the call option, expired after 12 months, Elderslie says that this was logical because of the potential for what it suggests would be complications from the expiry of the Call Option Period very close to 21 December 2007.  It says that there would be little or no time for the exercise of the put option in that event, with 21 December 2007 as the last date for settlement.  So it was logical for the parties to agree to avoid that complication by denying the Dunns their put option from 2006.  This is unpersuasive.
  1. Returning then to cl 2.2, the call option was exercisable at any time during a period the expiry of which was defined as 14 days from Elderslie’s receipt of a notice under cl 8.16.  By that clause, the Dunns were to notify Elderslie within seven days of the gazettal of the Amendment to the Planning Scheme.  Within cl 8.16(a) there is no expressed time limit on that obligation.  But in the context of cl 8.16 as a whole, it is clear enough that the duration of that obligation was defined by the Approval Date.  Undoubtedly the “Approval” was the Amendment to the Planning Scheme.  The Dunns’ obligation to give notice of the gazettal was limited to a gazettal by the Approval Date.  Accordingly, cl 8.16(d) was not otiose.  It gave Elderslie the right to extend the Approval Date so that the Dunns’ obligation to give notice, and in turn the Call Option Period, would be thereby extended.  So the obligation to give notice under cl 8.16(a) was limited to a gazettal by the Approval Date, being 21 December 2006 or as extended under cl 8.16(d). 
  1. Accordingly, if the Amendment to the Planning Scheme was not gazetted by the Approval Date (as originally agreed or as extended), the Call Option Period was thereby at an end. The result of this interpretation is effectively the same as if the words “Call Option” and “Grantee” were added to cl 8.16(c).  It might be said that under this interpretation, cl 8.16(c) serves no distinct purpose.  Nevertheless, this is preferable to Elderslie’s argument, under which cl 8.16(d) is otiose, or inexplicably provides a right to Elderslie but to be exercised for the benefit of the Dunns.
  1. Further, as the Dunns argue, the correctness of their interpretation is supported by cl 10 of the deed which is as follows:

Consultants’ reports

(a)If the Amendment to the Planning Scheme is not approved by the Approval Date, then the Grantee will assign so far as it is lawfully able (and will use all reasonable endeavours to have the authors of the Consultancy Reports assign) the ownership and benefit of the Consultants’ reports and all plans, reports and approvals to the Owner and to the owners of the Adjoining Land jointly, and the Grantee will have no claim to any ownership or benefit of those items.

(b)Provided the Grantee complies with clause 10(a), if any dispute arises between the Owner and the owners of the Adjoining Land concerning the ownership of the Consultants’ Reports, the Owner acknowledges that it has no recourse to the Grantee which may arise as a result of the assignment contemplated by this clause 10.

(c)In this clause 10 ‘Consultants’ Reports’ means the reports and materials obtained and owned by the Grantee for the Amendment to the Planning Scheme.”

Under Elderslie’s argument, the Call Option Period might extend almost 12 months past the Approval Date, yet under this cl 10, Elderslie was obliged to hand over the relevant reports, plans and approvals to the Dunns and owners of the Adjoining Land if the Amendment to the Planning Scheme was not gazetted by the Approval Date.  It is nonsensical that Elderslie would preserve its right to purchase the land but have to hand over that material.  The evident intention was that the material would be handed over because absent the Amendment to the Planning Scheme by the Approval Date, the call option would not be exercisable.

  1. There is a further issue concerning the construction of cl 8.16(d).  The Dunns argue that Elderslie was able to extend the Approval Date only on or before that date.  Elderslie says that it was able to extend after that date, if it did so within a reasonable time.  I accept Elderslie’s argument on this point.  The power to extend was exercisable “if on the date 12 months from the date of this Deed the Amendment to the Planning Scheme has not been gazetted …”  The power was exercisable only once that day, the Approval Date, had passed and there had not been a gazettal.  The language is inconsistent with the power being exercisable prior to that circumstance occurring.  Nor would I accept that it was intended that the power be exercisable on but one day, the Approval Date.  Clause 8.16(d) does not itself provide for the means by which Elderslie was to communicate its extension of the Approval Date.  But cl 8.1 of the deed provided that “any notice or other communication including, but not limited to, any request, demand, consent or approval, to or by a party to this Deed” should be as there prescribed.  That required a written notice addressed to the Dunns at this property with a copy to their solicitors.  The notice was to be signed by a director or secretary of Elderslie or under its common seal, or by Elderslie’s solicitors.  Conceivably all this could have been done on 21 December 2006.  But it is an unlikely intention to attribute to the parties that it had to be done. 

Rectification or mistake

  1. Upon my interpretation of the deeds, the Dunns’ alternative arguments for rectification or relief for a unilateral mistake need not be determined. Nevertheless, it is necessary that I make findings as to the relevant facts.
  1. I have mentioned already that one owner of ‘Adjoining Land’ was Mr Marriage.  He has extensive experience in land development and the Dunns allowed him to conduct much of the negotiations for themselves and other owners.  They had the same solicitors, who were Holding Redlich.  Mr Dunn was involved in some negotiations however.

On the Elderslie side, it was Mr Bowman who conducted negotiations, together with its solicitors, TressCox.  It is unnecessary to detail every discussion or meeting.  I will summarise what I think are the important steps towards the execution of the deed. 

  1. By about mid-September 2005 the negotiations had progressed to a point where there was apparent consensus as to what should be the terms of an agreement. The proposal was not for put and call options, but for a contract of sale, conditional upon an Amendment to the Planning Scheme the same as that which ultimately was described in cl 8.16 of the deed. On 16 September 2005, Holding Redlich sent to TressCox a draft contract. It provided for the sale of Lot 3.  One of its special conditions was that the sale would be subject to the contemporaneous settlement of other land including Lot 6.  I do not have a copy of a draft, if any, for the sale of Lot 6.  I infer that either there was a draft contract for the sale of Lot 6 in identical terms or that it was common ground that whatever became the agreed terms for Lot 3 would be included within a contract for Lot 6.
  1. This draft contract provided for a sale at the same price ($3,600,000). It contained other terms, such as provision for a due diligence period, which corresponded with what became terms of the deed. It also contained a special condition for a ‘Planning Scheme Amendment’. It was in terms similar to those of cl 8.16 but with a difference which is critical to the Dunns’ rectification case and it is necessary to set that clause out in full (in the draft of September 2005, it was in the form which showed an earlier version of this clause with amendments but it is necessary only to set out the then current draft):

4.Planning Scheme Amendment

  1. This Contract is subject to and conditional upon the Amendment to the Planning Scheme.
  1. In this Special Condition 4, “Amendment to the Planning Scheme” means an amendment to the Brisbane City Council Planning Scheme advertised in the Queensland Government Gazette that will permit the Buyer to lodge the Development Approval in respect of the Property and the Adjoining Land.
  1. If the Amendment to the Planning Scheme has not been gazetted by the Approval Date determined in accordance with special condition 4(c), this Contract will be at an end and no party will have any claim against the other.  The Buyer acknowledges that the termination of the Contract pursuant to clause 4 does not require the Seller to return the Deposit.
  1. The ‘Approval Date’ shall be the date which is 12 months after the Contract Date provided however that if on the date 12 months after the Contract Date the Amendment to the Planning Scheme has not been gazetted then the Buyer may extend the Approval Date (on one or more occasions) by a cumulative maximum of 12 months and in this case the extended date shall become the ‘Approval Date’.
  1. If the Amendment to the Planning Scheme is gazetted on terms which would prevent the Buyer from lodging the Development Application, this Contract will be at an end and no party will have any claim against the other.
  1. In this clause 4 “Development Approval” means the development approval for the development outlined in Attachment 1.
  1. The “Amendment to the Planning Scheme” was the same as that defined within cl 8.16 of the deed.  It can be seen that subparagraph (d), in defining the “Approval Date” was relevantly identical to cl 8.16(d).  The difference is that this draft provided, by para (c), that if there was not a gazettal by the Approval Date, then the contract would be at an end and neither party would have any claim against the other.  This is in contrast to cl 8.16(c) which provided that in that circumstance, the put option should be deemed never to have been granted.
  1. Accordingly had the parties contracted in terms of this draft, the expression ‘this contract will be at an end’ within condition 4(c) would have meant that the contract could have been avoided at the election of Elderslie or the Dunns.
  1. The significance of this draft contract is that it proposed that absent a gazettal by the Approval Date, neither party could require the other to sell or buy as the case may be. That contrasts with Elderslie’s argument on the interpretation of the deed, which is that ultimately the parties agreed that in that event, Elderslie would retain its call option but not be subject to the put option.
  1. On 19 September 2005 Mr Bowman sent a fax to Mr Marriage in which he referred to this draft contract. He said that he had not yet discussed the changes with Elderslie’s solicitor but he made some “initial comments”. Some of those related to cl 4 but not to cl 4(c) and they are not presently relevant. 
  1. On 20 September 2005, TressCox wrote to Holding Redlich commenting on the draft.  Again those comments included some things about special condition 4, but nothing in relation to condition 4(c).
  1. On the same day, Mr Bowman faxed to Mr Marriage a list of what he said were the outstanding issues.  Again there was no comment in relation to condition 4(c).  But what was significant was Mr Bowman’s request within that fax for a call option, which Elderslie was requesting “to allow flexibility over the next 12 months without the penalty of double stamp duty”.  This referred to Elderslie’s proposal to change the transaction from a conditional sale to an option to purchase.  Elderslie was concerned that if it nominated another entity as the transferee, stamp duty would be paid by its side twice.  So it suggested that it be granted an option to purchase, so that another entity might be nominated which could then, by exercising the option, become the contracting party and conveyance duty would be paid once.  The response from the Dunns’ side, represented by Mr Marriage, was to ask for what became the Put and Call Options.  On 20 September Mr Bowman noted that “LM [Mr Marriage] wants put/call” and “MM [Mr Mellick from TressCox] to draft”.
  1. On 21 September 2005 there was a meeting between Mr Mellick, Mr Duane from Holding Redlich, Mr Marriage and Mr Dunn.  There is a detailed file note of that meeting made by Mr Mellick which includes the following:

“[Mr Duane] said that if the matter is to proceed by way of an option, then it must be a put and call option.  I said to [Mr Duane] that as it is a conditional contract, I would have thought it only meant to be a call option.  [Mr Duane] said that if my client is satisfied with its due diligence enquiry and the amended plan is gazetted, then [in] circumstances where my client does not exercise the option, it is only fair that his clients are able to put the properties to my client to sell.  I said … that I would need to get instructions”.

  1. Meanwhile, the solicitors continued to negotiate the terms of a conditional contract. In the course of that correspondence, on 30 September TressCox wrote to Holding Redlich advising that Elderslie “accepts your wording of special condition 4(c)”.  By this stage the parties had all but agreed on the appropriate terms for a conditional contract.  In particular they had agreed upon the terms of special condition 4(c).  But the proposed contract was then overtaken by the proposed Put and Call Option.
  1. On 17 October 2005 TressCox sent to Holding Redlich a draft Deed of Put and Call Option.  The draft had been prepared by Mr Mellick.  In his covering letter, Mr Mellick wrote:

“We are instructed your clients have agreed to proceed on the basis of a Put and Call Option being entered into, rather than parties entering into a straight Contract of Sale.  You may recall this issue was discussed at our meeting of 21 September 2005. 

We have not attached the Contract of Sale to the draft Deed of Put and Call Option at this stage.  However we expect the Contract to be attached to the Deed will only require minor amendments to that Contract which the parties have agreed upon.  For example, we anticipate special conditions 1, 3 and 4 of the draft contract will require deletion as these matters are now dealt with in the Option.”

That Deed included a clause 8.16 which was substantially in the terms of cl 8.16 of the executed Deed.  In particular, it contained a draft corresponding with the ultimate cl 8.16(c).

  1. Correspondence passed resulting in some redrafting but not of cl 8.16.  On 27 October 2005, TressCox wrote to Holding Redlich enclosing a Deed of Put and Call Option for each of Lot 3, Lot 6 and the land owned by Mr and Mrs Marriage.  Holding Redlich were asked to confirm “as a matter of urgency that the enclosed documents (were) in order”.  On the following day Holding Redlich emailed a response suggesting a few changes to each deed.  The relevant change concerned the proposed settlement date for the completion of the contract made in consequence of the exercise of one or other option.  The draft by TressCox had provided for a settlement date 12 months from the contract date.  Holding Redlich said that “our clients”, including thereby the Dunns, “have agreed that there is to be a 2 year cap on this transaction” so that the settlement date should be 30 days and not 12 months from the contract date.
  1. On 31 October, TressCox wrote back saying that this had not been “part of the negotiations between the parties to date” and that it had “always been contemplated that there be a 12 months settlement period with a right vested in our client (Elderslie) to call upon the owners to settle earlier”.  On the same day, Holding Redlich replied:

“Our clients have agreed on a 2 year cap on this transaction.  The option period is 12 months, with the ability to extend for 12 months.  If your client elects to extend the option period for 12 months, then the total transaction period could be 3 years.  If your client elects to extend the option period, then the settlement period under the contract must be reduced to ensure a 2 year gap”.

  1. On 4 November 2005, TressCox wrote to Holding Redlich as follows:

“You will note that in all of the contracts attaching to the Deeds of Put and Call Option, we have amended the settlement special condition to provide that settlement will be effected on that date which is the earlier of 12 months from the contract date or 2 years from the date that the Deed of Put and Call Option was entered into.  This facilitates the ‘2 year cap’ that your clients were seeking”.

This is the origin of the provision for settlement in cl 2 of the special condition to the contract annexed to the Deed of Put and Call Option.

  1. There is no question that each of the solicitors was writing according to their instructions. In particular, there is this note made by Mr Mellick of his conversation with Mr Bowman on 3 November 2005:

“David [Mr Bowman] said he had just finished a conversation with Lester Marriage and one of the sticking points is this potential time period of 3 years to settlement.  David said he had read clause 8.16 of the option deed several times and as far as he understands it, he has potentially up to 2 years until the amendment to the planning scheme to come through and then 12 months from exercise of option to settlement date.  I said [to] David that this is correct”. 

Just prior to this letter, TressCox had written to Mr Bowman seeking Elderslie’s instructions on this “2 year cap”.  Importantly they wrote:

“Presently, the deeds of put and call option provide that you have potentially 24 months for the amendment to the planning scheme to be gazetted and then when either a put and call option is exercised, the settlement date under the contract of sale which results from the exercise of the option is 12 months from the date of exercise of the option.  However you have the right to settle earlier than 12 months upon giving the owner 1 month’s written notice in writing that you elect to do so.  If you have agreed to a 2 year cap then the settlement provisions of the contracts will need to be re-drafted”.

As I read that advice, it is that the effect of what became cl 8.16 was that the put option would exist for as long as the call option existed, which is inconsistent with Elderslie’s present case. 

  1. On 9 November 2005 TressCox sent further drafts of the Deed of Put and Call Option, with the amendments highlighted.  On 2 December 2005 Holding Redlich sent to TressCox deeds for execution by Elderslie.  Deeds were exchanged ultimately on or about 21 December 2005.
  1. Mr and Mrs Dunn gave evidence.  Mrs Dunn had not been much involved in the negotiations.  Because much of the detail was left by her to Mr Dunn and to Mr Marriage, I think it is fair to say that she had no specific intention as to at least some of the contractual terms.  However, I am well satisfied that both Mr and Mrs Dunn intended the deeds to have the effect which, upon my interpretation, they do have.  The Dunns were at one stage about to enter into contracts of sale, under which neither party was to remain bound if the gazettal did not occur by the original or extended Approval Date.  To accommodate Elderslie’s concerns about stamp duty, they were asked to change the transaction from a conditional sale to an option.  They insisted upon there being both a call option and a put option.  It is clear that what they were being asked to do, and what they were willing to do, was to restructure the transaction but with the same commercial purpose and effect.  Undoubtedly they intended that if there was no gazettal by the original or extended Approval Date, neither party would be under any obligation.  In particular, they did not intend that they would remain bound by the call option. 
  1. For Elderslie it is argued that Mr Dunn’s evidence should not be accepted.  Elderslie points to what the Dunns had pleaded within their original Defence.  They there pleaded an express oral term of each deed “that the gazettal of the Amendment to the Planning Scheme will occur within a reasonable period of time after … 21 December 2005 …and that the call option period will expire if the Amendment to the Planning Scheme is not gazetted within that time”.  Particulars were given of that oral term.  It was said to have been agreed in conversations between Mr Bowman, Mr Marriage and Mr Dunn in or about November and December 2005.  I accept, as Elderslie contends, that there was no conversation in these terms.  Mr Dunn agreed with that in his evidence.  He attributed this pleading to his solicitors.  No one from the solicitors was called.  The fact that Mr Dunn at least allowed this to be pleaded, when I have no doubt Mr Dunn understood its effect and knew of its falsity, is strongly against his credit.  Nevertheless, the course of correspondence which I have outlined compellingly points to the Dunns believing that the call option would not be exercisable if there was no gazettal by the original or extended Approval Date.
  1. In the ultimate pleading by the Dunns, as the Defence was amended on the second day of the trial, they now plead the rectification case which corresponds with the deed upon its correct interpretation. They plead a common intention “that the call options and the put options under the deeds would expire in the event the Amendment to the Planning Scheme was not gazetted by the Approval Date”. Previously they had pleaded an intention that the options would expire “12 months after the date of the deeds, subject to the ability to extend the expiry date for up to a further 12 months”.  I am satisfied that the current pleading does reflect the Dunns’ then intention.  Their understanding was that if there was a gazettal by the Approval Date they would be obliged to give notice under cl 8.16(a) and the call option could be exercised as late as 14 days from the date of receipt of that notice.  But they understood that if there was no gazettal by the Approval Date, they were not required to give notice and neither party was under any further obligation.
  1. The Dunns were also criticised for not calling Mr Duane to say what explanations he gave to them about cl 8.16.  They say this leads to some Jones v Dunkel[2] inference.  But again having regard to the contemporaneous documentary evidence, it is clear that the Dunns were not advised that the deeds would have an operation as Elderslie contends they have. 
  1. A case for rectification requires “convincing proof” that the contract does not embody the parties’ common intention and the omitted ingredient must be capable of such proof in clear and precise terms: Pukallus v Cameron.[3]  In my view the documentary evidence to which I have referred provides convincing proof of at least of the Dunns’ intention.  I turn then to Elderslie’s intention. 
  1. Again, that correspondence at least strongly indicates that Elderslie had the same intention. The parties had reached consensus as to the terms of the proposed conditional contract. Its terms were unambiguous. In particular, no one whose understanding mattered within the Elderslie side of the transaction could have misunderstood the effect of the special condition. Elderslie’s only reason for not contracting on those terms was a concern about stamp duty. Elderslie accepted that there should be a put option as well as a call option. I infer that those on the Elderslie side understood that the Deeds of Put and Call Option would be drafted to have the transaction correspond in its commercial effect with the proposed conditional contracts. There is nothing to suggest that anyone on this side of the transaction was opportunistically looking to obtain from the change to put and call options some more favourable terms. In particular, there is nothing to suggest that anyone adverted to an advantage to be gained by having the Dunns bound for 12 months from 21 December 2006 whilst Elderslie would not be bound.  That would have been a substantial difference from the all but concluded agreement in the form of conditional contracts. 
  1. Elderslie strongly relies upon the letter to its directors from TressCox dated 16 December 2005.  That letter enclosed the deeds for Elderslie’s execution.  It also provided advice as to their terms.  It appears that the solicitors had been taking instructions from Mr Bowman but by this letter they were providing advice to the directors.  Elderslie argues that it is the intention of its directors which is relevant here, not that of Mr Bowman.
  1. The letter advised as follows:

“(c)   The period during which [Elderslie] may exercise the call option, that is, the ‘call option period’ begins on the day after the date of the deed and ends at 5.00 pm on that day which is 14 days from the date that [Elderslie] receives a notice from the owner, or from their solicitors, that the amendment to the planning scheme (as that term is defined in clause 8.16 of the Lot 3 and 4 deeds and clause 9.16 of the Lot 6 deed) has been gazetted. 

The above means that [Elderslie] may exercise its option any time after the date of the deed but in the more likely circumstances, it will exercise the option within the 14 day period after receipt of notice of the gazettal.

This basically means that [Elderslie] has 14 days to consider whether the amendment to the planning scheme will facilitate the development outlined by Urbis JHD and proposed by [Elderslie].

(h)   Each of the owners has been granted a put option.  …

(i)  The owners may only exercise their put option between the period commencing on the day which the call option period expires and ending at 5 pm on that day which is 5 business days from the expiry date of the call option period.

(u)   Clause 8.16 of the Lot 3 and Lot 4 deeds and clause 9.16 of the Lot 6 deed relates to the amendment to the planning scheme.

There is an obligation upon the owner or its solicitor to notify [Elderslie] or us of the gazettal of the amendment to the planning scheme.

If the amendment to the planning scheme will not facilitate the development approval … then the put option granted to each owner shall be deemed never to have been granted and therefore the owner may not exercise it.

Also if the amendment to the planning scheme has not been gazetted by the approval date, then the put option granted to the owners shall be deemed never to have been granted and therefore not exercisable by the owner.

The approval date is that date which is 12 months after the date of the deed.  However it may be extended by a cumulative maximum of 12 months

(v)   Under the Lot 3 and Lot 4 deeds, [Elderslie] will, so far as it is lawfully able to, assign the ownership and benefit of the consultant’s plans, reports and approvals to the owner and to the owners of the adjoining land jointly.  This obligation to assign only operates in circumstances where the amendment to the planning scheme is not approved by the approval date.”

  1. Mr Garcia was a director of Elderslie at this time.  He was not a negotiator.  When asked “What level of detail did you have as to what was taking place during the negotiations?” he answered “Just the discussions with Mr Bowman and through the solicitors’ letters that we normally took to explain the transaction”.  His is one of the signatures for Elderslie’s execution of the deeds.  He says he read the deeds before signing and he read the advice of 16 December 2005.  His understanding of the effect of the deeds came from reading simply those things and “various discussions with Mr Bowman”.  He said he had no precise recollection of those discussions “other than that they were in line with the documentation”.  In crossexamination he gave this evidence:

“It was not your understanding or intention, for example, that the put option would expire a year before the call option? --

No.

No.  It was your understanding that the put option was something that would continue to exist with the call option and could be exercised provided the gazettal occurred? --  No, I’m not clear on that, sorry.

Mr Clothier:  The point, I suppose, Mr Garcia, is that there were details about how these transactions would work that you were content to leave to Mr Bowman to decide? --  Yes.

Yes.  And that was so at the time of you executing the option deeds? --  Yes, that’s correct.

And at the time of executing the option deeds, you didn’t seek to understand every minute detail of the mechanisms of the deeds? --  No, not every minute detail.  Just the ones relevant to risk and return.

The broad picture is something you sought to understand;  is that right? --  Yes.  Correct.

That is that Elderslie would have options and there be put options if there was a gazettal;  that’s right? --  Correct.

The detail of how the broad framework would work was something you were content to leave Mr Bowman to decide? --  Yes.

And when you executed the deed, you did so comforted by the fact that Mr Bowman had satisfied himself as to those detailed workings? --  That he understood those, yes.

Yes.  And that he was happy with them, then that was satisfactory from your perspective? --  On the details, yes.

Now, do you recall the level of your contact with Mr Bowman about the drafting of the deeds? --  Very little.

Do you recall – sorry, would you speak to him regularly? --  I spoke to him regularly, yes.

About the deeds? - - No, not about the deeds.  I just left it to him to negotiate, work out the detail of the deeds with the lawyers.”

  1. From this evidence I find that Mr Garcia left it to Mr Bowman to see that the deeds contained appropriate terms.  Although he was a director and Mr Bowman was not, it was Mr Bowman’s intention which was and is now relevant.  The same applies in relation to Elderslie’s contention that the state of mind of Mr Crogan, Elderslie’s CEO at the time, was relevant.  Mr Bowman said that Mr Crogan read that letter of 16 December 2005.  Mr Crogan did not give evidence.  It seems clear from the whole of the evidence that it was Mr Bowman who was left to negotiate and to give instructions as to the appropriate terms. 
  1. Mr Bowman gave evidence that he has no real recollection of his state of mind in relation to the workings of cl 8.16.  Consistently with that, Elderslie pleads in response to the rectification case that Mr Bowman cannot recall whether he intended that the call options could be exercised for 24 months after the date of the deeds or whether Elderslie needed to extend the time for the exercise of the call options “to have the benefit of 24 months to exercise them”.  I accept that Mr Bowman no longer recalls the detail of his understanding of the transaction as it was proposed or as it became.  The contemporaneous evidence strongly suggests that he intended that the deeds should operate as I interpret them.  Again there is nothing to suggest that he perceived some opportunity to secure a more advantageous term or terms on the restructure of the transaction from conditional contracts to call and put options.  I find that he had relevantly the same intention as the Dunns.  As it happens, this intention accords with the deeds on their proper interpretation.
  1. It follows that had I not so interpreted the deeds, I would have ordered their rectification as the Dunns have claimed.
  1. Before going to the next issue, which is the purported extension of the Approval Date, I should note that it is no part of that rectification claim that there was a common intention that the power to extend the Approval Date be exercisable only on or before the Approval Date. As I have held, according to cl 8.16(d), that power was exercisable after the Approval Date. 

Was the Approval Date extended?

  1. Elderslie purported to extend the Approval Date to 21 December 2007.  It did so by a letter from TressCox to Holding Redlich dated 8 February 2007.  If that extension was effected, then having regard to subsequent events, Elderslie has validly exercised its options and is entitled to specific performance.  I have discussed already the Dunns’ argument that Elderslie had to extend by 21 December 2006.  Apart from that argument, it was common ground that the present issue, the efficacy of the purported extension, turned on whether Elderslie had purported to extend within a reasonable time after 21 December 2006.  That requires a discussion of the then circumstances. 
  1. By mid 2006 the Dunns were in financial difficulties.  They had defaulted in paying National Australia Bank Limited, which in August 2006 appointed two accountants of Ferrier Hodgson to be the Bank’s agents to exercise its various default powers.  On 21 August 2006 Ferrier Hodgson wrote to TressCox about the Deeds of Put and Call Option.  They wrote that:

“ … [N]either the Agents nor the Bank adopt the terms and conditions of the Deed and the ensuing contracts of sale.  Neither the Agents nor the Bank are bound by the contracts of sale and are therefore not obliged to proceed with the sale of the Rochedale properties to your client [Elderslie].

In that regard, the Bank is currently assessing its options regarding the immediate sale of the Rochedale properties”.

  1. At this stage the Amendment to the Planning Scheme was not imminent. Faced with the letter from Ferrier Hodgson, Elderslie explored other ways to obtain the Dunns’ land. At first it suggested to the Agents that Elderslie and the Dunns agree to vary the deeds to the effect that, if Elderslie exercised the options within a matter of weeks, the purchase prices would be reduced and there would be some other variations. This was of some interest to the Bank but not to the Dunns. So the Bank began taking steps towards exercising its power of sale. There were then some counter proposals by the Dunns involving an immediate sale. All of this became more complicated by proposed changes to the ownership of Elderslie itself. In the meantime, the Bank was advertising a mortgagee’s sale.
  1. The Bank pressed Elderslie for an offer to purchase from it as mortgagee. A form of contract was provided by the Bank’s real estate agent to Elderslie, and by late November 2006, the Bank was complaining that Elderslie had delayed in its response.  The Dunns were endeavouring to conclude a contract with Elderslie at a higher price than the Bank’s proposal.  All of this came to nothing.  By 21 December 2006 the Dunns were still in default and their property was still effectively in the hands of the Bank. 
  1. On an objective view, Elderslie’s predicament was that until 21 December 2006, it was bound by the Deeds of Put and Call Option, but their enforceability by Elderslie was in doubt.  At least in theory, a gazettal might have occurred by the Approval Date, in which event the Dunns had their Put Options.  So had Elderslie contracted with the Bank without the concurrence of the Dunns, they were at risk of being liable for breach of contract.  On the other hand, the Bank was threatening to exercise its power of sale as it was entitled to do regardless of Elderslie’s rights against the Dunns.  Elderslie might have exercised its call options there and then, but the land did not have the benefit of the Amendment to the Planning Scheme.  Once the Approval Date had passed, Elderslie would be free to deal with the Bank. 
  1. Perhaps Elderslie understood all of this and it provides a logical explanation for why Elderslie did not immediately extend the Approval Date. This is further indicated by the fact that Elderslie acted to extend the Approval Date as soon as it learnt, in February 2007, that the Dunns had successfully refinanced so that Elderslie no longer had to deal with the Bank.  Another view is that Elderslie believed that there was simply no point in extending the Approval Date because the property was effectively in the hands of the Bank which was not bound by the deeds.  What Elderslie does not appear to have considered is the prospect of keeping the deeds alive by short extensions of the Approval Date.  Clause 8.16(d) permitted a series of extensions for periods ultimately ending no later than 21 December 2007.  On 11 August 2006 TressCox had written to Mr Bowman in the context of the Bank’s intervention, to advise Elderslie of its alternative courses.  Nothing was said there about the course of extending the Approval Date, and in particular by one or more short extensions. 
  1. There was effectively no contact between Elderslie and the Dunns or their respective solicitors between 21 December 2006 and February 2007.  On 8 February, TressCox wrote to Holding Redlich:

“ … We understand that any incoming financier may wish to ensure that our client is still interested in acquiring the property.

Therefore, we wish to record formally that our client has extended the approval date under the option deed to the maximum period permitted, which is 21 December 2007, being the date which coincides with the approval date agreed in the option deed entered into with your other client, Mr Marriage.

Of course, if the gazettal of the Amendment to the Planning Scheme occurs prior to that date, as we are sure those involved in the proposed development wish to be the case, then the call option period will expire sooner”.

On the same day, Elderslie lodged a caveat over Lots 3 and 6 claiming an equitable interest pursuant to the Deeds of Put and Call Option.

  1. Counsel for the Dunns was reluctant to accept the characterisation of Elderslie’s position as its having a power of election: a power to elect to keep the deeds operative by extending the Approval Date, rather than to let the deeds come to an end by the nonoccurrence of the gazettal by the original Approval Date.  But in my view, this is a proper characterisation and the case law dealing with such power is relevant.  Handley in Estoppel by Conduct and Election (2006) characterises this as a power of election rather than as a right of election because it “does not involve a choice between two sets of rights which coexist but a choice between an existing set of rights and a new set which does not yet exist.  The power is to terminate the one and create the other and the default position is that the existing rights remain in force.  Such a power may arise under the general law or under an express term”.[4]  Elderslie’s power was to effectively revive the operation of the deeds because if it did nothing then according to their terms the options were no longer exercisable. 
  1. There are two propositions which are of present relevance. Firstly, the power to elect need not be exercised at once, as long as the position of the other party is not prejudiced in consequence of any delay: Tropical Traders Ltd v Goonan;[5]  Sargent v ASL Developments Ltd.[6]  In McCormick v National Motor & Accident Insurance Union Ltd,[7] Scrutton LJ said:

“You are not bound … to make up your mind at once;  you are entitled to a reasonable time to consider – to a reasonable time to make enquiries.”[8] 

Citing that passage, Handley says at 14039:

“A party entitled to exercise a power of election need not do so at once, and can keep it alive for a time provided he does nothing which exercises it, but the facts may require him to act promptly”.

Secondly, a mere lapse of time can become so great that it evidences a decision not to exercise the power.  Handley[9] cites this passage from Clough v London and North Western Railway Co,[10] a case dealing with rescission for fraud but which Handley says is of general application:

“… so long as he has made no election he retains the right to determine it either way, subject to this, that if in the interval whilst he is deliberating … the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind … lapse of time without rescinding will furnish evidence that he has determined to affirm … and when the lapse of time is great, it probably would in practice be treated as conclusive evidence that he has so determined”.

In Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga),[11] Lord Goff said:

“In all cases he has in the end to make his election, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes the decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him, or sometimes by holding him to have elected to exercise it”.

In Scandinavian Trading Tanker CoAB v Flota Petrolera Ecuatoriana (“The Scaptrade”)[12] Lloyd J said:

“As with other cases of election, eg a right to accept a breach of contract as a repudiation, mere lapse of time does not of itself operate as an election … [t]he lapse of time must be of such a length as to indicate unequivocally to the defaulting party that the innocent party has elected to affirm.  This is sometimes paraphrased by saying that the innocent party has a reasonable time in which to make up his mind”.

  1. So I accept then that the present question can be considered by the measure of a reasonable time, either according to the authorities which affect the timely exercise of a power of election, or simply by a contractual implication necessary for business efficacy. But the matters which are relevant in considering reasonableness are indicated by those authorities. In particular, the absence of any prejudice to the Dunns from Elderslie’s delay does not require a conclusion that Elderslie acted within a reasonable time. The question is a factual one. It involves an objective assessment of Elderslie’s conduct, or more precisely of its failure to act.
  1. If it was reasonable for Elderslie to have made enquiries before deciding whether to extend the Approval Date and keep the deeds on foot, then the question will be affected by how much time those enquiries should have taken. The evidence does not reveal that Elderslie was busy making enquiries. Ultimately, I am left with the impression that Elderslie had simply assumed that the Dunns would not be able to refinance and that because the Bank had made it clear that it was not bound by the deeds, the options were not going to be enforceable and the transaction was more or less at an end by Christmas 2006.  It is not the case that some seven weeks passed before 8 February 2007 because Elderslie was enquiring about matters relevant to the future of the Deeds of Put and Call Option.
  1. The choice for Elderslie after 21 December 2006 was whether it was prepared to keep itself bound by the deeds by extending the Approval Date or whether it was prepared to lose the benefit of the deeds, a benefit it might enjoy according to the Dunns’ prospects of refinancing.  This predicament was not of its making.  On the other hand, it was not entitled to hold the Dunns to these deeds indefinitely. 
  1. There was no reason to delay in order to make enquiries as to the progress of the gazettal. It is not suggested that some time, and in particular several weeks, had been required to investigate the progress of the gazettal.
  1. A further consideration is that Elderslie was entitled to extend for a very short period if it wished, and again and again. This makes it more difficult to see that a period of several weeks was needed for Elderslie to make up its mind. It follows that its silence over so many weeks more strongly evidenced an intention not to extend the Approval Date.
  1. I have concluded that more than a reasonable time had passed by 8 February 2007 for the exercise of this power.  A period of seven weeks was very considerable in the circumstances.  It was well more than was required for the making of relevant enquiries.  Elderslie’s extension was made too late.

Relief against forfeiture

  1. Elderslie claims relief against the forfeiture of its equitable interest in the lots as the holder of options to purchase. Elderslie did have an equitable interest upon the basis that each deed was a conditional contract to sell to Elderslie upon condition that it gave notice of exercise of the option according to its terms: Laybutt v Amoco Australia Pty Ltd.[13]  However, Elderslie’s interest was limited by time.  Its interest existed for as long as it was entitled to exercise its option.  Once the Call Option Period had expired, Elderslie had no interest.  It was not by any act of the Dunns that Elderslie’s interest came to an end but simply from the expiry of the time for which Elderslie’s interest was to exist.  Unlike the position in Tanwah Enterprises Pty Ltd v Cauchi,[14] upon which Elderslie’s argument relies, or that in Legione v Hateley[15] or Stern v McArthur,[16] the present case does not seek relief for the voluntary and unconscientious action of the other party in terminating the contract.  Mason and Deane JJ said in Legione v Hateley:[17]

“The rule that relief is never granted in respect of forfeiture by operation of law has no application to a forfeiture which occurs in consequence of a voluntary act done in the exercise of a legal right for, as we have seen, it is against such an act that relief is ordinarily granted.  In this case rescission was the consequence of the respondent’s noncompliance with a notice given by the appellants in exercise of the right conferred by condition 5.  However, condition 5 does not affect the intrinsic character of rescission – essentially it is a voluntary act done by way of exercise of a legal right bringing about a legal consequence, the termination of the contract.  Of course, if relief be granted against the vendor’s voluntary act, the legal consequence flowing from that act – the rescission – is displaced and the purchaser’s equitable interest is either continued or renewed.”

  1. It was held in Evanel Pty Ltd v Stellar Mining NL[18] that there is no equitable jurisdiction to relieve against the loss of a right to exercise an option to renew a lease.  This was upon the basis that an option was simply a conditional offer, and unless the conditions were fulfilled, the offer could not be accepted.  The better view would now seem to be that preferred by Gibbs J in Laybutt v Amoco.  Nevertheless, counsel for Elderslie did not cite any case in which this equitable jurisdiction was exercised in favour of the grantee of an option to purchase who had failed to exercise its option within the time limited by agreement for its exercise.  I am not persuaded that there is jurisdiction to grant relief in such a case.  But in any event I am not persuaded that it is unconscientious for the Dunns to plead that the time for exercise of the option had expired and to look to exercise their legal rights as owners to otherwise deal with the property.
  1. The facts relevant to this argument have been summarised already in relation to the preceding issue. It may be accepted that the Dunns’ default of their obligations to the Bank, and the Bank’s insistence that it was not bound by the call options, caused Elderslie not to extend the Approval Date. As a result of those matters, Elderslie pleads that from August 2006 it appeared to Elderslie by Mr Bowman and its solicitors “that there was no utility in exercising the Call Options under the Deeds”.  But Elderslie did not have to then exercise its options because it was permitted to extend the Call Option Period.  It further pleads that its failure to give a notice of extension within a reasonable time of 21 December 2006 “was a result of the conduct of the defendants”, that conduct being the Dunns’ default of their commitments to the Bank.  But it was not the Dunns who caused Elderslie to not extend the Approval Date within a reasonable time.  The choice for Elderslie was to remain bound by the deeds, by extending the Approval Date, or to let the options, both the call options and the put options, come to an end so that Elderslie would then be free to deal with the Bank without the Dunns’ concurrence.  It could have extended by, say, one month whilst it explored the prospect of an agreement with the Bank to be concluded after the expiry of that month.  The Dunns did not cause Elderslie to overlook that course or to not follow it.
  1. There is no suggestion that the Dunns caused Elderslie to not extend the Approval Date by giving them false information about their prospects of refinancing. The Dunns certainly made no attempt to keep Elderslie informed of their progress and I infer that they wished to keep it from Elderslie in case Elderslie did something which might have affected that refinancing.  But this did not involve an element of fraud or deception which would make it unconscientious for the Dunns to plead the expiry of the Call Option Period.
  1. Elderslie also argued that “the Dunns kept open the question of whether to terminate the deeds for the failure of Elderslie to give a notice by 21 December 2006” and that “[b]y keeping that question open the Dunns allowed Elderslie on 8 February to extend the approval date under the option deed to the maximum period”.[19]  This is said to be a further relevant consideration to the case for relief against forfeiture.  But it misstates the position, for the Dunns did not terminate the deeds for the failure of Elderslie to give a notice.  Elderslie was not obliged to give a notice and nor was it a matter for the Dunns to elect upon Elderslie’s failure to do so.  Instead, as already discussed, Elderslie was no longer entitled to its options because they were defined to be limited to a period of time which had by then expired.

Dunns’ election or estoppel

  1. On 28 September 2007 the Queensland Government Gazette contained a notice of adoption of certain amendments to the Brisbane City Plan 2000.  These amendments were the Amendment to the Planning Scheme within the meaning of the deeds. 
  1. On 2 October 2007 Holding Redlich wrote to Elderslie’s solicitors as follows:

“As you know, in the Amended Defence filed by the Dunns in Queensland Supreme Court Proceedings No BS1635/07 which has been brought by your client, Elderslie Property Investments No 2 Pty Ltd, the Dunns allege that the option deeds between the parties in respect to Lots 3 on RP 114765 (‘the Lot 3 deed’) and Lot 6 on RP 114765 (‘the Lost [sic] 6 deed’) have expired and are unenforceable.

As you may also be aware, on 28 September 2007, the Queensland Government gazetted the Adoption of Amendments to the Planning Scheme.  A copy of the gazettal notice is attached for your information.

If the Dunns’ Amended Defence in the Supreme Court proceedings is dismissed, then the option deeds will be on foot and the rights and obligations of the parties under those deeds also remain on foot.  For that reason, we are instructed to give notice to your clients of the gazettal on a ‘rights reserved’ basis.

Accordingly, we hereby give notice to your clients of the gazettal of the Amendment to the Town Planning Scheme under clause 8.16 of the Lot 3 deed and under clause 9.16 of the Lot 6 deed.  This notice is given on the basis that the Dunns expressly reserve their rights in relation to the matters raised in their defence in the Queensland Supreme Court proceedings and continue to deny the existence of the Lot 3 deed and the Lot 6 deed.

A copy of this letter and the notice will also be delivered via facsimile to Elderslie Property Investments No 2 Pty Ltd under the Lot 3 deed and the Lot 6 deed.  The call option period under the lot 3 deed and the lot 6 deed expires at 5pm on Tuesday, 16 October 2007.”

  1. On 16 October 2007, Elderslie’s solicitors wrote enclosing documents which purported to exercise the options.  This was within 14 days of the Holding Redlich letter of 2 October 2007.  And the Dunns concede that if Elderslie was then entitled to exercise the options, then Elderslie has, in all respects, acted according to the deeds.  More generally, it is conceded that Elderslie is ready, willing and able to perform.
  1. Elderslie argues that the letter of 2 October 2007 constituted some election by the Dunns to perform the deeds.  Alternatively Elderslie says that by that letter, the Dunns represented that they would perform and that Elderslie has acted on the basis of that representation so as to estop the Dunns from denying Elderslie’s right to specific performance.  Elderslie incurred some expenses in exercising the option.  This is said to constitute the relevant reliance. 
  1. Each of these arguments misstates the effect of the letter of 2 October 2007.  Far from representing that they would perform according to the deeds, the Dunns by this letter made it clear that they were maintaining their position as they had pleaded in these proceedings.  However, in case these proceedings were decided in favour of Elderslie, and in particular in case Elderslie’s interpretation was upheld, the Dunns were concerned to act consistently with what would then be their obligations under clause 8.16.  Elderslie could not have considered that this was an election by the Dunns to have the deeds operate, or a representation that if Elderslie exercised its options, that the Dunns would convey the land to them absent the Dunns being ordered to do so in these proceedings.
  1. Elderslie argues that “this case has unique circumstances” in that “Elderslie assumed from the letter that it was forced to choose either or two alternatives created by the letter. It was forced to make its own election”. I have difficulty in understanding the relevance of this to Elderslie’s case that the Dunns had elected or that they should be estopped. Nor are the circumstances unique: this was simply a situation in which one party was carefully avoiding a liability for breach of contract in the event that its stance about the status or interpretation of the contract was not upheld: see eg: DTR Nominees Pty Ltd v Mona Homes Pty Ltd.[20]

Conclusion

  1. Elderslie failed to exercise its options within the agreed period. In that circumstance, it has demonstrated no entitlement to a conveyance of the Dunns’ land. The  plaintiff’s action must be dismissed.  It will be ordered that its caveat dated 8 February 2007 over Lots 3 and 6 be removed.  I shall hear the parties as to costs.

Footnotes

[1] (1983) 151 CLR 422

[2] (1958-59) 101 CLR 298

[3] (1982) 180 CLR 447 at 452 and 456

[4] at [14-002] (citations omitted)

[5] (1963-1964) 111 CLR 41, 55

[6] (1974) 131 CLR 634 at 656

[7] (1934) 49 Ll LR 362

[8] (1934) 49 Ll LR 362 at 365

[9] at [14-040]

[10] (1871) LR 7 Ex 26 at 35

[11] [1990] 1 Lloyd’s Rep 391, HL at 398

[12] [1981] 2 Lloyd’s Rep 425 at 430

[13] (1974) 132 CLR 57 at 71-76;  see also Troywinds Pty Ltd v Cooper (1989) 1 Qd R 222;  David Deane and Associates Pty Ltd v Bonnyview Pty Ltd [2005] QCA 270

[14] (2003) 217 CLR 315

[15] (1983) 152 CLR 406

[16] (1988) 165 CLR 489

[17] (1982) 152 CLR 406 at 447

[18] [1982] 1 NSWLR 380 at 386

[19] Plaintiff’s written submissions, para 37

[20] (1977-78) 138 CLR 423 at 431-432

Close

Editorial Notes

  • Published Case Name:

    Elderslie Property Investments No 2 Pty Ltd v Dunn

  • Shortened Case Name:

    Elderslie Property Investments No 2 Pty Ltd v Dunn

  • MNC:

    [2007] QSC 372

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    11 Dec 2007

Litigation History

No Litigation History

Appeal Status

No Status