Townsville Pharmacy No 4 Pty Ltd v V Quattro Pty Ltd

This case considered whether a failure to pay a nominal amount of consideration ($10) within two business days, as stipulated by the contract, meant that the purported exercise of a call option was invalid (despite the $10 being paid at the time of purported exercise). Henry J declared that the option had been validly exercised, on the basis that payment within two days was not a pre-requisite to the existence of the contract, nor “of the essence”.

Henry J

17 May 2023

Background

V Quattro granted Townsville Pharmacy an option to purchase its business. [1]. The consideration identified was “the payment of $10 within two business days of the agreement”. [1]. However, the $10 was not paid until about 21 months later, when Townsville Pharmacy purported to exercise the option. [2]. V Quattro asserted the exercise of the option was ineffective because of the failure to pay the $10 within two days of the agreement. [2].

Townsville Pharmacy sought a declaration that its exercise of the option was valid. [3]. In essence, the resolution of this issue turned on whether the payment within two days was “essential to the existence of an enforceable contract”, or if not, whether payment within that time was “of the essence”. [6]. His Honour considered that the answer to both of those questions was “no”. [7].

Why the Court declared the exercise of the option to have been valid

His Honour considered that numerous features of the contract demonstrated that the payment of the $10 within two business days of the agreement was “not a condition precedent to the coming into existence of an enforceable contract” and was not “of the essence”. [77]. In particular, his Honour observed that (at [76]):

(a)the clause requiring the payment of $10 did not say that payment must first occur for an enforceable contract to come into existence or for the grant of the option to be effective;

(b)another clause contemplated payment of the $10 after the date on which the agreement made the grant of the option;

(c)a clause stipulating mandatory requirements for the exercise of the option did not include a requirement that the $10 have been paid within the two business days;

(d)unlike certain other requirements, the contract did not say that “the call option will expire worthless” if payment of the $10 did not take place within the two business days;

(e)unlike certain other requirements, the contract did not say that “this agreement is subject to or conditional on” the payment of $10 within the two business days; and

(f)$10 was so obviously a nominal amount that it supported an interpretation that prompt payment of that amount was not essential.

Accordingly, his Honour declared that, despite the payment of $10 not having been paid within the two business days stipulated, the applicant (having complied with all other requirements, and paid the $10 at the time of exercise) had validly exercised the call option granted under the contract.

W Isdale of Counsel