Smoothseas Pty Ltd v Lawloan Mortgages Pty Ltd
[2007] QSC 82
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- Unreported Judgment
- Appeal Determined (QCA)
- Smoothseas Pty Ltd v Lawloan Mortgages Pty Ltd[2007] QSC 82
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Smoothseas Pty Ltd v Lawloan Mortgages Pty Ltd[2007] QSC 82
Smoothseas Pty Ltd v Lawloan Mortgages Pty Ltd[2007] QSC 82
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Trial |
ORIGINATING COURT: | |
DELIVERED ON: | 13 April 2007 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 4, 5 April 2007 |
JUDGE: | Mackenzie J |
ORDER: |
|
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where plaintiff entered into deed with defendant containing option to purchase commercial land – where plaintiff had 60 days in which to exercise option according to manner set out in the deed – where clause required the return of completed and signed contract – where plaintiff purported to exercise option on the final day of the Option Period by faxing ‘intention to go unconditional on the purchase contract’ and copy of deposit cheque – where plaintiff also mailed copy of executed contract and cheque on same day – where defendant submits that the option was not properly exercised within the required time period – whether the parties contemplated exercise of the option by other methods – whether the facsimile was sufficient to constitute the exercise of the option – whether the postal-acceptance rule applied Ballas v Theophilos (No 2) [1958] VR 576, cited Bressan v Squires [1974] 2 NSWLR 460, cited Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, cited Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, cited Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222, cited |
COUNSEL: | J A Griffin QC, with A Trichardt, for the plaintiff R G Bain QC, with P D Tucker, for the defendant |
SOLICITORS: | Saunders Downing Hely for the plaintiff Hogan & Company for the defendant |
[1] MACKENZIE J: Although a variety of alternative forms of relief were originally sought in these proceedings, by the completion of the trial matters in paragraphs 34 to 43 of the statement of claim, being waiver and estoppel, relief under the Trade Practices Act 1974 (Cth), unconscionable conduct and relief against forfeiture were no longer pursued. This rendered some of the evidence tendered by way of affidavit irrelevant, particularly that of Mr Hedditch, the real estate salesman involved in the transaction. What remained was a claim for specific performance and alternative relief if due exercise of an option which is central to the case was established but specific performance was not granted.
[2] The plaintiff is a company, the sole director, shareholder and company secretary of which was Ms Mastrapas. Her brother, George Stathopoulos, who was the main witness for the plaintiff, acted for and represented the plaintiff in connection with the proposed purchase by it of land on the Whitsunday coast. Mr Stathopoulos had previously been involved in property development and gave the impression, when giving evidence, that he was experienced in that area. According to his evidence, he did not seek legal advice prior to the crucial events occurring.
[3] His authority to act in the transaction was not admitted in the defence, which was amended from time to time but not in that regard. In his address, Senior Counsel for the defendant submitted that there was no evidence, in the form of a resolution of the company, that the option was to be exercised, with a view to suggesting that there was no evidence that Mr Stathopoulos had been authorised to do so. Ms Mastrapas, who was not required to give evidence, deposed in her affidavit that was tendered that Mr Stathopoulos was authorised to act for and represent the plaintiff in connection with negotiations with a view to purchasing and to purchase the property on behalf of the plaintiff if it was a good and feasible investment opportunity. Mr Stathopoulos deposed, and confirmed in his evidence, in similar terms that he was authorised. The issue of authority was not raised in cross-examination. I am satisfied that there is sufficient evidence to establish that Mr Stathopoulos was authorised to exercise the option.
[4] On 13 September 2006, Mr Stathopoulos and his financial adviser, Mr Bush, travelled to Brisbane and met with Mr Harvey, a director of the defendant, and others associated with it. Originally, Mr Stathopoulos wanted a due diligence period of 90 days and a settlement period of 90 days. However, after negotiations, a document in the form of a deed giving an option to acquire the property was entered into. By Cl 1, the period within which the option was to be exercised was 60 days from the date of the option. It was common ground that the last day upon which it might be exercised was Monday 13 November 2006.
[5] Clause 2 of the deed is in the following form:
“2.The Grantee may exercise the Option hereunder by returning to the Grantor prior to the end of the Option Period the Contract annexed hereto completed as follows, together with the deposit:
(a)The Purchasers
(b)The Purchase Price shall be $3,300,000.00;
(c)The Deposit shall be 2% ($66,000.00);
(d)The Completion Date shall be sixty (60) days from the date of the Contract;
(e)The Contract Date shall be the Date of Exercise;
(f)The Agent and Deposit holder shall be Sammut (sic) & Co.”
[6] The plaintiff was also required to pay a non-refundable option fee of $10,000 which was to be credited to the deposit under the contract if the option was exercised (Cl 3). Clause 4 was concerned with access to information concerning the property. A copy of the contract to be entered into, including special conditions in annexure A, was attached to the option. Essentially, the information referred to in cl 2 was to be filled in when the contract was executed by the purchaser.
[7] During the option period, investigations were made by Mr Stathopoulos and discussions were held with Mr Bush about financial matters. Mr Bush had discussions with a variety of potential joint venturers in the project, including Mr Bennett, who, the tenor of the evidence suggests, was considered the best prospect. It was pressed on behalf of the defendant that the sequence of events around 13 November 2006 was contrived to gain more time to finalise finance. However, it is not necessary to ascribe any reason for what happened. It is essentially a question of construction of the option and application of established principles that is important.
[8] On or about 6 November 2006 there were discussions about a possible extension of the option period as a result of which an email was sent to Mr Harvey. Without going into detail, no extension was granted.
[9] According to Mr Stathopoulos, he was advised by Mr Bush that an extension of the option had not been granted. He had consequently asked Mr Bush on 10 November 2006, to send a fax to the defendant exercising the option. However that was not done on that day.
[10] Then, on the last day for exercising the option, 13 November 2006, Mr Bush sent a facsimile to the defendant at about 1:37pm. The substance of the facsimile signed by Mr Stathopoulos on behalf of the plaintiff is as follows:
“Smoothseas Pty Ltd has undertaken substantial measures in obtaining a satisfactory due diligence on the Clarkes Cove Property in the time frame allowed. It is Smoothseas intention to go unconditional on the purchase contract dated 13-9-06 and will settle on or before 13-01-07. Attached to this facsimile is a copy of the cheque deposit for the balance (2% of Purchase Price) the deposit monies that will be mailed to your office this afternoon. Once you have received the cheque could please forward a receipt to the above-mentioned Mail Box.”
A photocopy of a cheque made out to “Lawloan Mortgages” in the sum of $66,000 was also transmitted. However, no copy of the contract itself was sent.
[11] According to Mr Stathopoulos’ evidence, the contract had been signed on the morning of 13 November 2006 between 9 and 10 o’clock at Frankston where Ms Mastrapas worked. Although the evidence is not entirely clear on the point, the final position seemed to be that he dictated the text of the fax over the phone to Mr Bush on Friday 10 November 2006. On the Monday, he went to Mr Bush’s office about midmorning and signed the fax which Mr Bush had typed up in the meantime. The facsimile was subsequently sent at 1:37pm by Mr Bush.
[12] According to Mr Harvey, he was contacted by Mr Edwards, the solicitor handling the transaction on behalf of the defendant, informing him that the facsimile, without a copy of the executed contract attached, had been received. Just after 5pm Queensland time on Monday 13 November 2006, the solicitor again telephoned him to confirm that neither the executed contract nor a cheque for the deposit had been received. Mr Harvey then instructed the solicitor to send a fax to Mr Stathopoulos stating that the option had not been properly exercised and had expired. The significance of the activity around 5pm was that it was believed that the Standard Terms and Conditions relating to Commercial Land and Buildings made that time critical. However, the defendant was content to argue that the option had not been effectively exercised at any time on 13 November 2006. The letter said the following:
“As you are aware, we act for Lawloan Mortgages Pty Ltd and refer to your facsimile of 13 November 2006 to our client.
We are instructed to respond as follows:
“1.Your facsimile of 13 November 2006 merely indicated that ‘it is Smoothseas Pty Ltd intention to go unconditional on the Purchase Contract dated 13.9.06 and will settle on or before 13.01.07.’
2.Attached to that facsimile was a copy of a cheque drawn on Smoothseas Pty Ltd Account payable to ‘Lawloan Mortgages’.
3.That facsimile further indicates that the deposit cheque was merely being mailed to the office of Lawloan on the afternoon of 13 November 2006.
4.We are instructed that that facsimile and the posting of the deposit does not constitute a valid exercise of the option agreement dated 13 September 2006 entered into between your company and Lawloan Mortgages Pty Ltd as Grantor.
5.That Option Agreement, a full executed copy of which was furnished to you on that day, sets out quite clearly the method of exercise of the option.
6.This required the exercise of the Option by Smoothseas Pty Ltd:
(a)Returning to Lawloan Mortgages Pty Ltd prior to the end of the Option Period, the Contract which was annexed to the Option, duly completed as to the matters listed in paragraph 2(a)-(f) thereof.
(b)This required the Contract to be completed and signed by Smoothseas Pty Ltd and received by Lawloan Mortgages Pty Ltd prior to the expiration of the Option Period (which was 60 days from the date of the Option), duly completed as to:
(i)The Purchaser;
(ii)The Purchase Price;
(iii)The Deposit of $66,000.00;
(iv)The Completion Date;
(v)The Contract Date being the date of exercise of the Option; and
(vi)The Agent and Deposit Holder being named as Samut & Co.
(c)All of the above were required to be completed by close of business on Monday, 13 November 2006.
7.The Contract further required, accordingly, that the deposit amount be paid to the Deposit Holder, not to Lawloan Mortgages Pty Ltd.
8.It had been previously stressed to you at the time that the Option Agreement was prepared and entered into that that was the method of exercise.
9.The Contract itself is not unconditional and binds the purchaser once the option is exercised to complete the Contract regardless of ‘intentions’ by the Completion Date which was 60 days from the date of exercise, being in this case 13 January 2007.
10.In that respect, compliance with the terms of both the Contract and the Option and the timings therein were strictly of the essence.
11.Accordingly, your facsimile and the posting of the cheque represented by that facsimile, do not comply with the terms required for a bona fide exercise of the option.
12.Our client further waited until conclusion of business on 13 November 2006, being the expiration date of the Option Period, for the option to be properly exercised.
13.Our client had further advised you at the time that you should seek legal advice on the terms of the Option.
Accordingly, the option has not been properly exercised and Lawloan Mortgages Pty Ltd is released from its obligations thereunder.
The cheque for $66,000.00 will be returned to you when received, but under the terms of the Option Agreement, the Option Fee of $10,000.00 is retainable by our client. This is provided for by clause 3 of the Option Agreement.”
[13] On 14 November 2006, Mr Stathopoulos travelled from Melbourne to Nerang and attended at the office of the defendant. He arrived at about 5:50pm with a copy of the contract documents and a further cheque, this time made out to Samut & Co, in accordance with the option agreement. At the time he arrived, the office was closed but Ms Guy, the company secretary of the defendant, was still present. Mr Stathopoulos eventually identified himself and she telephoned Mr Harvey to inform him that Mr Stathopoulos was there. While she was doing this Mr Stathopoulos pushed an envelope containing the contract, executed on behalf of the plaintiff and the cheque and a covering letter, under the door.
[14] Then, on 17 November 2006 at about 8:35am an administrative assistant whose functions included opening the mail at the office where Lawloan had its registered office opened an envelope which included a copy of the contract executed by the plaintiff and the original cheque, a photocopy of which had been faxed to the defendant on 13 November 2006. According to Mr Stathopoulos, this envelope had been posted in Melbourne at about midday on 13 November 2006. The only Australia Post markings on the envelope show that it was processed at a Mail Centre in Brisbane on the evening of 15 November 2006.
[15] The letter reproduced in [12] represents the defendant’s stance, that the exercise of the option was not in accordance with the procedure prescribed in the deed for doing so. The primary issue for determination is whether that is correct. It was common ground that, to resolve the case, it was unnecessary to engage in an examination of the jurisprudential basis of an option since that exercise did not affect the question of whether the option had in fact been validly exercised.
[16] The plaintiff submitted that cl 2 was facultative only. The use of “may” meant that other methods of exercising the option were available to the plaintiff. It was permissible to exercise the option in writing or orally, communicated to the defendant no later than 13 November 2006. Since the deposit was payable only on the day of execution of the contract by the plaintiff and the defendant, immediate payment of the deposit was not essential. The necessary communication was contained in the fax quoted in paragraph [10]. No later than 14 November 2007, when the documents were pushed under the door of the defendant’s registered office, the contract was returned and the deposit paid (although not yet payable).
[17] Alternatively, the plaintiff could return, to the defendant, the contract executed no later than 13 November 2006 by the plaintiff together with the deposit. No other notice would be required. The necessary communication of acceptance was to be found in the “return” of the contract and the deposit, by posting them on 13 November 2007, in reliance on the “postal rule”.
[18] The option must be construed as a commercial document. Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 contain recent statements of principle by the High Court. In the latter, the joint judgment of the court referred to the principle of objectivity by which rights and liabilities of parties are to be determined. The judgment continues:
“It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.” (footnote omitted)
[19] Where an option is concerned, one issue, and the critical one in this case, is whether there is provision that it must be exercised in a particular way or whether any communication in a clear and unqualified way that it is being exercised is within the intention of the parties, objectively determined, as a sufficient means of exercising it (Ballas v Theophilos (No 2) [1958] VR 576; Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222). As previously foreshadowed, the defendant contends for the former and the plaintiff for the latter.
[20] The case is not one where the problem is that what is relied on as acceptance did not come to the notice of the defendant within the necessary time limit if the fax sent at 1:37pm on 13 November 2006 is sufficient to constitute acceptance. The alternative submission based on the postal rule, where it is argued the act of posting which occurred on the last day for acceptance would be sufficient acceptance depends on how the question of interpretation of cl 2 is resolved. If a specific method of exercising the option, to the exclusion of other potential methods, is required under the deed, there is no basis for its application.
[21] As Bowen CJ in Eq said in Bressan v Squires [1974] 2 NSWLR 460 at 463, cases like this are largely ones of impression. Copious authority was cited on the exercise of options and on the postal rule. While instructive as to the approaches taken on individual facts of cases, they did not involve identical clauses to the critical one in this case.
[22] The meaning of the phrase “return to the Grantor prior to the end of the Option Period” is at the heart of the matter. What has to be so returned under cl 2 is the contract annexed to the deed, completed in accordance with paragraphs (a) to (f), together with the deposit. In my view, the only reasonable objective construction of this phrase is that it was necessary for the completed contract and the deposit to be back in the hands of the grantor prior to the end of the Option Period. It was not suggested that any particular method of returning the contract to the Grantor was necessary, as long as it and the deposit came into its possession before the expiry of the Option Period. Commercial considerations such as the importance to the Grantor of having evidence that the option granted by it had been duly exercised strictly in accordance with the terms of the agreement within the Option Period and receipt of the deposit as tangible evidence of the intention of the grantee to proceed with the transaction favour this construction. The submission that such a construction would effectively narrow the option period because of the locations of the parties is not compelling. Evidence of events on the day after the Option Period expired shows that physical delivery of documents, if that had become necessary, on the last day of the Option Period, which would have undoubtedly constituted a return of them to the Grantor, would have been feasible.
[23] The use of the words “may exercise the Option” in my view are intended to mean that the Grantee is permitted or authorised to exercise it only in the manner set out in cl 2. The phrase is not used in a sense that allows the Grantee to use some other means of doing so. In that sense, “may” is not discretionary or facultative, but mandatory as to the method to be used once the Grantor has decided to exercise it.
[24] On this construction of the deed there is no scope for any other effective means of acceptance. Therefore neither the fax of 13 November 2006, nor the posting of the documents on the same day were effective means of acceptance. The orders are as follows: