The Acacia Ridge Hotel Holdings Pty Ltd v Stratis
[2009] QSC 21
To print this judgment please return to the case and click on the PDF icon
next to the
case name. For court use, a full PDF copy is required or preferred.
Exit Distraction Free Reading Mode
Please Note: You are about to print a copy of the onscreen
version of
this judgment. For court use, a full PDF copy of the judgment is required or preferred. Please
return to
the case for PDF printing options.
- Unreported Judgment
- The Acacia Ridge Hotel Holdings Pty Ltd v Stratis[2009] QSC 21
- Add to List
The Acacia Ridge Hotel Holdings Pty Ltd v Stratis[2009] QSC 21
Reported at [2009] 2 Qd R 100
The Acacia Ridge Hotel Holdings Pty Ltd v Stratis[2009] QSC 21
Reported at [2009] 2 Qd R 100
SUPREME COURT OF QUEENSLAND
CITATION: | The Acacia Ridge Hotel Holdings Pty Ltd & Anor v Stratis & Ors [2009] QSC 21 |
PARTIES: | THE ACACIA RIDGE HOTEL HOLDINGS PTY LTD ANDREW STRATIS |
FILE NO/S: | BS 12788 of 2008 |
DIVISION: | Trial Division |
PROCEEDING: | Civil Trial |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 16 February 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 4 February 2009 |
JUDGE: | Chesterman JA |
ORDER: | I declare that: 1.The delivery of the put option notices dated 9 and 10 October 2008 was ineffectual and did not give rise to contracts between the plaintiffs and defendants to purchase the property 2.The plaintiffs are entitled to the return of bank guarantees provided pursuant to those deeds I order that: 3.The defendants’ claim for rectification is dismissed 4.The defendants’ counter-claim is dismissed |
CATCHWORDS: | DEEDS – OTHER MATTERS – where clause is drafted unintelligibly – where plain reading of clause leads to absurdity – whether appropriate to remove unintelligible terms and replace – whether to consider context of entire arrangement and give efficacy to the parties initial intentions |
COUNSEL: | Mr JA Griffin QC with Mr GJ Handran for the plaintiffs |
SOLICITORS: | Rostron & Carlyle Solicitors for the plaintiffs |
- The parties seek the Court’s construction of a clause which appears in identical terms in two deeds, both dated 11 April 2008. One deed (‘land deed), made between the first plaintiff and all defendants, had as its subject matter land located at 1386 Beaudesert Road, Acacia Ridge in Brisbane (‘the land’) on which was erected a large suburban hotel. The second deed (‘business deed’) was made between the second plaintiff and the third and fourth defendants. It related to the hotel business (‘the business’) conducted on the land.
- With the exception of the subject matter the terms of the two deeds were relevantly identical. The land deed defined the defendants as grantor and the first plaintiff as grantee. It recited that for the consideration identified in the deed:
‘(a)The grantor has agreed to grant the grantee a call option to purchase the land as provided in this deed.
- The grantee has agreed to grant the grantor a put option to require the grantee to purchase the land as provided in this deed.’
- In the business deed the third and fourth defendants were defined as the grantor and the second plaintiff was defined as the grantee. The deed recited:
‘(a)The grantor has agreed to grant the grantee a call option to purchase the business as provided in this deed.
(b)The grantee has agreed to grant the grantor a put option to require the grantee to purchase the business as provided in this deed.’
In each recital the word,‘land’, appears in typescript but has been crossed out and replaced by the word ‘business’ written in hand.
- In both deeds clauses 2.1 and 3.1 are identical. They provide:
‘2.1Grant of call option
In consideration of the payment of the call option fee by the grantee to the grantor (the receipt of which sum is hereby acknowledged by the grantor) the grantor grants to the grantee the option for the grantee to purchase the land, such option to be exercised by the service on the grantor or the grantor’s solicitors of the call option notice on or before noon on the call option exercise date and in the event of the service of the call option notice, the provisions of clause 4 will apply to govern such purchase.
3.1Grant of put option
In consideration of payment of the put option fee by the grantor to the grantee (the receipt of which sum is hereby acknowledged by the grantee), the grantee expressly agrees with the grantor that the grantor will have the option at any time after the exercise date and before noon on the date which is 24 hours after the date of this deed by the service of the put option notice on the grantee to require the grantee to purchase the land, and in the event of the service of the put option notice, the provisions of clause 4 will apply to govern such purchase.’
- Clause 4 provided that should notice be given in accordance with either clause 2 or 3 then the parties were deemed to have entered into a contract for the sale and purchase of the land and business respectively upon the terms and conditions set out in a contract which was annexed to each deed. The clause further provided that the date of the contract should be the date of service of the option notice and that the contract was to be executed by the parties within a week of the notice of exercise of the option. By clause 4.1(d) the parties acknowledged that the execution of the contract was intended only to record the terms of their agreement and that, upon the exercise of the option, the parties were immediately bound to sell and buy in accordance with the terms found in the contract.
- The contracts for the sale and purchase of the land and the business were to settle contemporaneously within 14 days from the date of exercise of the option. The consideration for the sale of land and business was $14,000,000.
- Some features of the deeds should be noticed. In many instances they are carelessly drafted. Clause 2.1 of the business deed exhibits an error. It conferred on the second plaintiff an option to purchase the land, not the business which was the subject of the deed as appears from its recitals. The deeds contain a number of definitions. The phrase ‘call Option Exercise Date’ which appears in clause 2.1 is not defined, but ‘Exercise Date’ is defined. The term means ‘the date on or before 168 days from the date’ of the deed. That date was 26 September 2008, a Friday. Both the call option fee and the put option fee were defined to mean the sum of $1. ‘Business day’ was defined to mean a day on which trading banks were open for business in the city of Brisbane.
- Clause 1.3 of each deed provided:
‘Where any act, matter or thing is required by the deed to be performed or carried out on or by a certain day and that day is not a business day, then such act, matter or thing shall be carried out or performed on or by the next following business day.’
- By clause 10 of the land deed the plaintiff was obliged to provide a bank guarantee in the sum of $700,000 first. The sum was $300,000 in the case of the business deed. The bank guarantees were to be provided upon the sale by the third and fourth defendants to the second plaintiff of two detached bottle shops which were the subject of a separate contract. That sale settled in June 2008. By clause 10.2 of the deeds the sums supported by the bank guarantees were to be ‘applied as payment of the deposit’ under each contract formed from the exercise of the option.
- Mr Johnston, the sole director of each plaintiff, guaranteed his companies’ obligations under the deeds and promised to indemnify the defendants ‘against any loss and damages howsoever arising which (they) may suffer in consequence of any failure of the (plaintiffs) to perform (their) obligations’ under the option deeds and the contracts.
- The plaintiffs did not exercise either of the call options.
- On 3 October 2008 Mullins Lawyers, who then acted for the plaintiffs, wrote to the defendants’ solicitors:
‘We note that the put and call option agreements, each dated 11 April 2008, have now expired with neither the grantors nor the grantees under either option having exercised their options in respect of those agreements.
We therefore confirm that the put and call option agreements are at an end.
Please confirm to the agent holding the security bond ... that it is in order for the agent to immediately deliver to our office the original bank guarantees. ...’
There were some prevaricatory responses from the defendants’ solicitors and on 9 October 2008 Mullins Lawyers wrote again;
‘Our client is anxious to ensure that his position in respect to the guarantees is protected and indeed to obtain banker’s guarantees at the earliest possible time. Please let us know by return when you expect to be able to inform us of your client’s position ...’.
- On 15 October 2008 the defendants’ solicitors wrote their considered reply. Having set out the terms of clause 3.1 of the option agreements they went on:
‘The words “and before noon on the date which is 24 hours after the date of this deed” are surplusage and meaningless ... . We consider the ... proper construction ... is that our clients are entitled to exercise the put option at any time after the exercise date (i.e. ... 26 September 2008) provided that they do so within a reasonable time ... . ... On the view we take of the matter it is not too late for our clients to exercise the put option. Accordingly we have arranged for service on your clients of the put option notices ... .’
- On 9 October 2008 the defendants executed a ‘put option notice’ addressed to the first plaintiff by which they gave notice that they exercised ‘the option granted to them by (the first plaintiff) under a deed of option dated 11th day of April 2008 to purchase’ the land. On 10 October the defendants executed another ‘put option notice’, also addressed to the first plaintiff in identical terms.
- On 9 October the third and fourth defendants executed a ‘put option notice’ addressed to the second plaintiff, giving notice that they exercised ‘the option granted to them by (the second plaintiff) under deed of option dated the 11th day of April 2008 to purchase ... the business described in the option ...’. The third and fourth defendants executed another put option notice in identical terms dated 10 October 2008.
- The reason for the duplication is not apparent but does not matter. There may have been some confusion caused by the fact that clause 2.1 of the business deed referred to an option to purchase the land when the subject matter of the deed and the option was the business. Be that as it may, the notices of exercise of the options were served on the plaintiffs on 16 October under cover of letters dated 15 October 2008
- The parties claim declarations as to the true meaning of clause 3.1 of each option deed. In addition the plaintiffs claim declarations that they are entitled to the return of the bank guarantees provided pursuant to the two deeds. The defendants’ counterclaim for declarations that Mr Johnston is liable to indemnify them against losses suffered in consequence of the plaintiffs’ refusal to purchase the land and business and declarations that their exercise of the put options was valid.
- The defendants also seek orders for rectification of the option deeds on the basis that each:
‘... was executed by the parties ... under a common mistake of fact, namely that each provided that the purchase of ... the property and the business would be postponed to a date ... within about six months of the date each deed was entered into, in the absence of earlier exercise ... of the deed call option.’
The rectification sought is the deletion of the words ‘and before noon on the date which is 24 hours after the date of this deed’ and the substitution of the phrase ‘within a reasonable time from the exercise date’.
- The present proceedings were limited to the question of construction of clause 3.1 and the concomitant question of the validity of the defendants’ purported exercise of the put options.
- The action proceeded without oral evidence on the basis of a statement of agreed facts and an agreed bundle of documents.
- Before turning to the question of construction it is necessary to set out some further facts which are relied upon by the defendants both for their preferred construction of clause 3.1 and the rectification suit.
- In September 2007 the defendants and the first plaintiff entered into a written agreement for the sale of the land. At about the same time the third and fourth defendants made a written agreement with the second plaintiff for the sale of the business. Both contracts were due for settlement on 11 February 2008 and were unconditional. The plaintiffs did not complete the contracts on the due date but sought and were granted an extension to 26 February 2008 on some additional agreed terms.
- The contracts did not settle on 26 February 2008. Settlement was extended by agreement to 4 March 2008. Again the contracts were not settled and the defendants granted extensions of time for the settlement of the two contracts to 1 April on terms including the payment of what was called default interest in the sum of about $160,000 and the payment of the defendants’ legal expenses. The plaintiffs did not complete the contracts on 1 April 2008 and did not pay the default interest. Thereafter there was a dispute about the plaintiffs’ obligations to complete the two contracts though the basis for denying their obligation to buy the land and the business was not explained in the material.
- On 7 April 2008 the defendant’s solicitor suggested to the plaintiffs’ solicitors a further extension of time on terms that:
(a)The defendants would sell the two detached bottle shops to a company owned or controlled by Mr Johnston for a price of $1,000,000.
(b)The extant contracts of sale would be completed after a postponement of six months and the total consideration would be $20,000,000.
- The proposal was not accepted by the plaintiffs. Instead the defendants’ solicitors, on 10 April 2008, sent the plaintiffs’ solicitors drafts of the option deeds which the plaintiffs accepted as satisfactory.
- As I have recounted the two deeds were executed by the parties, it seems by the plaintiffs on 10 April and by the defendants on 11 April 2008.
- Also on 11 April 2008 the parties executed two deeds which had the effect of rescinding the existing uncompleted contracts for the sale and purchase of the hotel, land and the business.
- The task of construing clause 3.1 is not the usual one which has been described as interpreting documents:
‘... according to the meaning that they “were to convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract” ’.
Per Kirby J in Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21 para 141.
- The task of construction explained in similar terms by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462:
‘The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Constructions ... Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:
“In a commercial contract it is certainly right that the Court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.” ’
- In this case the Court is not confronted with a clause which is ambiguous or inconsistent with other parts of the deeds. Nor is it a case where the meaning is obscured rather than revealed by the words chosen by the parties to express their bargain so that one has regard to “surrounding circumstances” to ascertain what they meant. It is, rather, a case in which the clause in question is unintelligible and cannot mean what the words actually convey. The principle in such cases is clear. In Fitzgerald v Masters (1956) 95 CLR 420 Dixon CJ and Fullagar J said (426-7):
‘Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.’
- In the same case McTiernan, Webb & Taylor JJ said (437):
‘It is trite law that an instrument must be construed as a whole. Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and common sense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words.’
- In Parmalat Australia Ltd v Norco Co-Operative Ltd [2006] QCA 129 the Court of Appeal approved as a principle of construction:
‘3.If the words of a contract, while plain and unambiguous, lead to a result which is not only unreasonable but absurd, the court should construe the contract, if necessary by supplying, omitting or correcting words to avoid the absurdity ... . Before this rule is put into operation it must, I think, be unmistakably clear that the parties cannot have meant what they said was their bargain.’
- This is not a case in which one obtains much benefit from the commercial purpose of the bargain, or the background and context of the bargain or the market in which the bargain was struck. The deeds obviously confer options for the purchase of property on the basis that the plaintiffs could compel the sale to them of the land and business and the defendants could compel the plaintiffs to buy the land and business from them in the event that the first right of compulsion was not exercised.
- It is at once apparent that there are serious defects in the drafting of the option deeds. The first error concerns the definition of ‘Exercise Date’, the date by which the plaintiffs had to exercise the option to purchase the land and business. The date clearly was intended to set out the latest time by which the call options could be exercised and the defendants become obliged to sell the land and business. The date, needed to give certainty to the option and its exercise, had to be fixed either by reference to the calendar or some defined event. Instead it was defined to mean ‘on or before 168 days’ from the execution of the deeds.
- Options typically may be exercised at any time during the period allowed or on a day fixed by the agreement for the exercise of the option. But it is necessary to fix a date by which the option must be exercised and beyond which the right to do so is lost. I speak of the typical option. In theory an option to purchase or to sell property may specify no time in which case, being a species of contract, the option must be exercised within a reasonable time: York Air Conditioning and Refrigeration (A/SIA) Pty Ltd v The Commonwealth (1950) 80 CLR 11 at 62 per Dixon J; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 543 and 554. I will return to this point later but it is clear that the deeds in question were of the conventional type and fixed, or were meant to fix a date by which the options were to be exercised. This follows from the use of terminology ‘Exercise Date’ and the terms of clause 2.1 which required the option to be exercised ‘before noon on the ... Exercise Date.’ The difficulty is that ‘Exercise Date’ was defined to mean any and every day between 11 April 2008 and 26 September 2008. This is the consequence of defining the date to be ‘on or before 168 days from the date hereof’.
- It is, I think, obvious that the draftsman confused the fact that an option might be exercised at any time between the grant of the option and the date fixed for its expiration with the need to fix the point of expiration. The confusion resulted in a definition of the date of expiration, or date by which the option had to be exercised, which is unworkable.
- What was intended was obvious enough. ‘Exercise Date’ means 26 September 2008 being 168 days subsequent to 11 April 2008. The words ‘on or before’ must be disregarded. They are the product of confusion.
- The real difficulty comes with clause 3.1 which confers on the defendants an option to require the plaintiffs to purchase the land and business. The options were to be exercised:
‘... at any time after the exercise date and before noon on the date which is 24 hours after the date of this deed ...’
The clause is meant to fix a time, commencing ‘after the exercise date’ and expiring no later than 12 midday on the day ‘24 hours after the date of (the) deed’. The deed of course pre-dates the exercise date so the time fixed for the exercise of the option by clause 3.1 is illusory: it expired before it began.
- Again it is obvious enough that the words ‘this deed’ are included in error.
- As it stands clause 3.1 is meaningless. It provides that the defendants had an option to require the plaintiffs to purchase their property but specified a time for the exercise of the option which cannot be identified or calculated. The defendants’ submission is that the time which clause 3.1 attempted to specify as the period in which the option was to be exercised should be ignored because it is meaningless. Ignoring it, one is left with a clause which confers the grant of a put option which may be exercised after a defined event but which does not fix a time at which the grant expires. The law’s ‘usual implication’ is to be made and a reasonable time allowed for the exercise of the option.
- The defendants’ submission is therefore that clauses 3.1 should read:
‘... (The plaintiff) expressly agree ... that the (defendants) will have the option within a reasonable time after the exercise date by the service of the put option notice ... to require (the plaintiffs) to purchase the land (and business) ...’.
- Despite the earnestness with which the defendants’ submission was pressed, I cannot accept it for a number of reasons.
- The first is that an option to be exercised ‘within a reasonable time’ from the grant of the option or from some other specified date would be very unusual, if not extraordinary. It is unheard of in my experience and none of the experienced counsel who appeared suggested that they had ever encountered such a provision. Although not definitive I note that the authors of the section, ‘Options’ in the Australian Encyclopaedia of Forms and Precedents assert that an essential component of an option is:
‘4.An expiry date, being the date by which the taker must exercise the option.’
- The point is repeated in para [540] in which the authors say:
‘Regardless of the subject matter of an option, all option agreements should contain the following basic features:
(iii)state the expiry date of the option ...’.
- In Lamont v Heron (1970) 126 CLR 239 Barwick CJ (with whom McTiernan, Owen, Walsh and Gibbs JJ agreed) said (at 244) of a clause ‘... we hereby grant ... 30 days option to purchase Lot 13 ...’:
‘Bearing in mind the purpose of fixing a duration for the option I am of opinion that in such a document the words mean that the optionee will have the succeeding thirty days in which to exercise the option. Whilst it is true that, theoretically, the option could be exercised immediately on the day it is granted, the real purpose of taking an option is to obtain a period of time during which the question of this exercise can be considered.’
That purpose to which the Chief Justice referred is, I think, the need to give certainty and cannot readily be achieved unless the time in question is fixed.
- According to the Encyclopaedia of Forms and Precedents 5th ed edited by Lord Millett at p 279:
‘It is essential that the events upon which the option may be exercised and the manner of its exercise are clearly set out in the option agreement. The nature of the option is that it gives the buyer the right to purchase land within a set period by service of notice upon the owner, following which the owner is required to transfer the property either at an agreed price or at open market value. The key feature of an option is the lack of any contractual obligation on the buyer to complete a purchase of the property ... . The owner is committed to sell if the option is exercised ... .’
At p 282 under the heading ‘Time for exercise of the option’ the following appears:
‘Clarity of the date by which the option must be exercised is essential.’
- The precedent provided by the Australian Encyclopaedia contains a clause which sets out a definition of terms used in the option agreement. One defined term is ‘expiry date’. The suggested clause for the exercise of the option is in these terms:
‘This option may be exercised by the taker serving a notice of exercise upon the writer on or before 5 pm on the expiry date.’
It should be noted that the terminology used by Australian Encyclopaedia for the parties to an option agreement are ‘writer’ and ‘taker’. In this State it is usual to refer to the parties as ‘grantor’ and ‘grantee’.
- The reason for the explicit inclusion of an option period is clear enough. While the option exists the owner’s rights of alienation are restricted and his capacity to deal with the property is curtailed. The grantee’s rights to purchase and the grantor’s restrictions are in the nature of proprietary interests which need definition by reference to time. An option unlimited in time is void as amounting to a restriction on the right to alienate a property: Hall v Busst (1960) 104 CLR 206.
- Halsbury’s Laws of England 4th ed Volume 42 para 25 defines an option to purchase land in these terms:
‘An option to purchase land is, in effect, an offer to sell, irrevocable for a stated period or until a stated event, made by the grantor of the option to the grantee, which the grantee is entitled to convert into a concluded contract of purchase on giving the prescribed notice and otherwise complying with the conditions on which the option is made exercisable in any particular case.’
None of the cases cited as authority for the description expressly decide that an option must be given for a specified period but a number of them proceed on the basis that that is the nature of an option.
- Apart from this general consideration it is apparent that the parties intended to fix a definite period within which the put option was to be exercised. They failed in the endeavour but it is clear that they did not intend time for the exercise of the put option to be at large. Moreover it is clear that they intended the time to be brief as the reference to 24 hours indicates.
- The plaintiffs submit that ‘exercise date’ should be substituted for ‘date of this deed’ in clause 3.1. They argue that the parties intended the put option to be exercised in a fixed period beginning on the expiration of the exercise date and ending at noon on a date 24 hours after another date which, obviously cannot be 11 April 2008. That reference is a clear mistake. The submission is that the obvious date which was intended and which should have appeared in the clause was the exercise date.
- Clauses 2.1 and 3.1 are clearly interlinked. The options conferred by clause 3.1 were to take effect only in the event that the plaintiffs did not exercise the call option granted by clause 2.1. That clause did fix a period during which the option could be exercised. It is most unlikely that the parties did not intend there to be a fixed time for the exercise of the put options.
- The terms of clause 3.1 unintelligible as they are nevertheless contain a sufficient hint of what the parties did intend. The put option period was to be 24 hours expiring at noon on a date not properly identified by the clause. The commencement of the 24 hour period was, in my opinion the expiration of the exercise date.
- Applied literally this would give the defendants only a morning in which to exercise their option. This follows from the time commencing ‘after the exercise date’. The exercise date was 26 September 2008 and that day expired at midnight. There is some difficulty in knowing what is ‘the date ... 24 hours after the exercise date’. It might be 27 September being the next day after the exercise date or it might be 28 September, being the day commencing 24 hours after the exercise date. In either case on this construction the defendants had until noon of the day, either 27 or 28 September to exercise the option.
- There is the problem that both dates were weekends and the options could not, in fact, have been exercised on either day because the plaintiffs’ office at which the notices had to be delivered was closed, as were the banks. This problem is overcome by the operation of clause 1.3 which, in effect, requires one to ignore weekends in the computation of time allowed by the option deeds. The next business day following 26 September was Monday, 29 September.
- On the plaintiffs’ preferred construction of clause 3.1 the defendants had until noon on 29 September to deliver their notices. Even if the Tuesday, 30 September was ‘the date which is 24 hours after the exercise date’ the notices had to be delivered by noon on that day. They were, of course, delivered later.
- I do not accept that this is the proper construction of clause 3.1. The critical part is expressed unintelligibly but it is clear enough that the parties intended that the defendants should have 24 hours to exercise the put option in the event that the plaintiffs did not exercise the call options. The reference to 24 hours in the clause is only sensibly explicable on this basis. Moreover the 24 hours were to expire at a midday. The clear implication is that it was the midday following the time by which the call option had to be exercised. That was noon on 26 September 2008. The call option was to be exercised by noon on 29 September, the next business day.
- In my opinion clause 3.1 should be understood as though it read:
‘... The grantor (defendants) will have the option at any time within 24 hours from noon on the exercise date with the service of the put option notice ... to require the grantee (plaintiffs) to purchase the land (and business) ...’.
- There is no doubt that clauses 2.1 and 3.1 were meant to work harmoniously. Clause 3.1 was to operate conditionally and consequently. The condition was that the call option had not been exercised by the exercise date, the period when the call option expired. It was meant to operate consequentially to create the put option following on the non-exercise of the call option. It would make more sense, therefore, for the put option period to commence immediately upon the expiration of the call option period rather than after some interval such as between midday and midnight on the exercise date. There is no doubt that the put option period was to expire at a midday 24 hours after some event. The obvious and logical event is the failure of the plaintiffs to exercise the call option ‘on or before noon on the ... exercise date.’
- One should construe the deed so as to give it efficacy. That result is achieved by giving a certain limit, by commencement and termination, of the time within which the defendants had to exercise the put options. There can be no doubt that the parties intended the duration of that time to be 24 hours. That is the one thing that is clear from clause 3.1. Neither commencement nor termination are identified but the words ‘before noon’ provide the clue, coupled with the fact that the call option was to be exercised ‘on or before noon’ on a specified day. Clauses 2.1 and 3.1 will operate harmoniously if the commencement of the period in which the put option could be exercised commences on the expiration of the period allowed for the exercise of the call options. This, moreover, is typically how put and call option agreements work and are expressed.
- The defendants rely upon the principle expressed by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109:
‘The Court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, “even though the construction adopted is not the most obvious, or the most grammatically accurate” ’.
- They submit that it is capricious and unreasonable to construe clause 3.1 so as to allow the defendants only the morning, three and a half hours between 8.30 am and midday to exercise their option. The three and a half hours are calculated on the premise that the 24 hour period commences at midnight on the exercise day and terminates at noon the following day. They argue that it is unreasonable because of the background and context to the transaction. The background is of a continuous refusal or inability in the plaintiffs to complete the earlier contract for the purchase of the land and business and the adoption of option deeds which would, in effect, give the plaintiffs a further six months to complete the transaction. It is said to be unreasonable or inconvenient or unjust that the defendants should have such a short span of time to compel the purchase of the property.
- The submission is misplaced. For a start the defendants had 24 hours not 3½ hours in which to exercise the call option. It is not unreasonable or unjust that the defendants should have a brief period to exercise their options. The evident purpose for fixing a brief time was to reduce the period which might elapse after the exercise date before the plaintiffs became bound to buy the properties. The defendants were keen, if not anxious, to sell. The plaintiffs were reluctant to buy, or at least had difficulty in doing so. They were given by the option deeds about five and half months to exercise their options to purchase. If they did not in that time exercise the options the defendants had the right to compel them immediately to buy and become bound by contracts to settle within 14 days. The shortness of time which clause 3.1 meant to fix was for the defendants’ benefit, to allow them to move immediately the plaintiffs failed to exercise their options to commit them to contracts and buy within 14 days.
- It follows that the defendants did not deliver the put option notices under either deed within the time allowed by clause 3.1. The plaintiffs were entitled to the declarations sought.
- I declare that the delivery of the put option notices dated 9 and 10 October 2008 was ineffectual and did not give rise to contracts between plaintiffs and defendants to purchase the property identified in the deeds between the parties of 11 April 2008. I further declare that the plaintiffs are entitled to the return of bank guarantees provided pursuant to those deeds.
- The defendants’ claim for rectification must be dismissed. It was advanced as an adjunct to the declaration sought as to the true meaning of clause 3.1. Mr Douglas SC who appeared with Mr Bickford for the defendants conceded that should his submissions on the construction point be accepted there would be no need for the court to consider the claim for rectification. The common intention necessary for the success of a rectification suit was, Mr Douglas submitted, to be found in the surrounding circumstances and background to the transaction and the parties’ failure to agree upon a time for the exercise of the call options. If those considerations led to the court preferring the defendants’ construction of the clause there would have been no need to rectify the deeds.
- No evidence was led as to the parties’ subjective intentions with respect to the time for exercising the call options. Nor was there evidence of communications which might have indicated a common intention about what the time should be.
- The only basis advanced for the rectification are the words of clause 3.1 in particular, the other clauses of the deed, and the transactional background. I have indicated my opinion that the words of clause 3.1 make it clear that the parties did not intend the time for the exercise of the call options to be left to a court’s ascertainment of a reasonable time. They intended to fix a time and to make it short but failed in their choice of words to describe the time intelligibly.
- The defendants’ counter-claim should be dismissed.