Haixing Group Pty Ltd v Mary Ann Chan

On 10 March 2015 the plaintiff, Haixing Group Pty Ltd, and the defendant, Mary Chan, entered into a Deed of Put and Call Option in respect of a property in Norwood Street, Burwood (“the Property”). The defendant, who is the registered proprietor of the Property, entered into the Deed as Grantor. The plaintiff entered into the Deed as Grantee.

The Deed provides that in consideration of the payment of a call option fee of $250,000, a call option is granted by the defendant to the plaintiff in respect of the Property. Clause 2 of the Deed concerns the manner of exercise of the call option.

Shortly after the Deed was made, the plaintiff lodged a caveat over the Property, claiming an interest as the grantee of an option. On about 9 September 2015 the plaintiff purported to exercise the call option. The defendant disputed that the plaintiff had validly exercised the call option. On about 19 October 2015 the defendant served a notice of proposed lapsing of the caveat.

By a Summons filed on 27 October 2015, the plaintiff seeks declaratory relief to the effect that it has validly exercised the call option and that the defendant is bound by the terms of the contract attached to the Deed. The plaintiff also seeks, inter alia, an order pursuant to s 74K of the Real Property Act 1900 (NSW) that the operation of the caveat be extended, or alternatively an order pursuant to s 74O of the Real Property Act for leave to lodge a further caveat, to claim an interest as the holder of a purchaser’s lien consequent upon the valid exercise of the call option.

The Summons, insofar as relief is claimed under s 74K or s 74O of the Real Property Act, came before the Court for hearing in the Real Property List on 30 October 2015.

The central issue to be determined is whether there is a serious question to be tried that the plaintiff validly exercised the call option.

Clause 1 of the Deed provides:

Clause 2 of the Deed provides:

The contract attached to the Deed was in the standard Law Society and Real Estate Institute form (2014 edition), together with a number of special conditions. The obligations of the purchaser under the contract were to be guaranteed by the plaintiff’s sole director and secretary, Qianyin Zhang.

On 2 September 2015 solicitors retained by the plaintiff, Day Legal, sent an email to SA Teen Solicitor in the following terms:

On 9 September 2015 Day Legal sent a letter by courier to SA Teen Solicitor in the following terms:

The enclosed contract was in the same form as the contract attached to the Deed, save that certain details (including the identity of the purchaser and the amounts of the price and deposit) were filled in, and it was executed for the plaintiff in accordance with s 129 of the Corporations Act 2001 (Cth) by Qianyin Zhang, and by Qianyin Zhang personally as guarantor.

It will be noticed that only one copy of the contract duly executed was delivered. Neither was any cheque delivered.

The defendant, for whom Mr M W Young SC appeared, submitted that for a number of reasons it was clear that the plaintiff had failed to validly exercise the call option. He therefore submitted that there was no serious question to be tried that the plaintiff had validly exercised the call option.

Mr Young contended that neither the 2 September 2015 email nor the 9 September 2015 letter constituted written notice of exercise of the option as required by clause 2.1.1(i). As for the email, it was said that it was a statement of an intention to do something in the future, namely exercise the option, not notice of a present exercise of the option. Further, it was not delivered personally as required by clause 2.1.4. As for the letter, it was said that it was not a notice of exercise of the option in circumstances where it did not use the words “exercise” or “option”, and made no reference to the email which did refer to an exercise of the option.

Mr Young further contended that the plaintiff, by delivering only one copy of the contract duly executed, had failed to comply with the requirements of clause 2.1.1(ii). He emphasised that clause 1.2 of the Deed stated in terms that the call option was an irrevocable offer which may be accepted “strictly in accordance with the provisions of this Deed”.

No point was taken that the plaintiff had failed to comply with the requirements of clause 2.1.1(iii), in circumstances where, allowing a credit of $250,000 for the option fee, no balance of the deposit under the contract remained payable.

Mr S Chapple of counsel, who appeared for the plaintiff, contended that there was a seriously arguable case that, by virtue of the email of 2 September 2015 either alone or in combination with the letter of 9 September 2015, notice of exercise of the option had been given as required by clause 2.1.1(i). He submitted that it was clear that, taken together, the documents provided written notice to the defendant of the exercise of the option. Mr Chapple further submitted that the documents (including the email) should be taken to have been delivered to the office of SA Teen Solicitor, and that personal delivery was not required in respect of that address.

Mr Chapple also contended that there was a seriously arguable case that by delivering one executed copy of the contract the requirements of clause 2.1.1(ii) were satisfied. It was submitted that it was seriously arguable that the Deed should be construed such that exact compliance with clause 2.1.1(ii) was not required, and that substantial compliance was sufficient. It was put that to require exact compliance with clause 2.1.1(ii) would place an absurd premium upon a particular form, in circumstances where execution of a contract merely formalises what is to occur once the option has been exercised. It was further put that the terms of clause 2.2 indicated that the parties became bound on the delivery of the (capitalised) Notice of Exercise of Call Option, rather than the parenthetical “other documents and the cheque”, and in any event the provision of a second copy of the executed contract was merely a matter of administrative convenience. Finally, it was suggested that the requirement for two copies was inserted for the benefit of the plaintiff.

Mr Chapple submitted that if there was a serious question to be tried, the balance of convenience was strongly in favour of either the extension of the caveat or the grant of leave to lodge a fresh caveat. Mr Young did not submit to the contrary.

There was no real dispute as to the legal principles to be applied. I was referred to the well-known summary of the principles given by Kirby P in Prudential Assurance Co Limited v Health Minders Pty Limited (1987) 9 NSWLR 673 at 677 (see also Samuels JA at 681-682 and McHugh JA at 683). Kirby P stated:

That summary has been adopted on numerous occasions since, including in the Court of Appeal in Young v Lamb [2001] NSWCA 225 at [21]-[26] per Stein JA (with whom Mason P and Hodgson JA agreed), and more recently by Lindsay J in C & P Syndicate Pty Limited v Reddy [2013] NSWSC 643 at [86].

I was also referred to Tonitto v Bassal (1992) 28 NSWLR 564 where Sheller JA (with whom Handley JA and Hope A-JA agreed) observed at 574 that it is generally accepted that effectual exercise of an option requires strict adherence to the method prescribed in the instrument creating the option; and to Boreland v Docker [2007] NSWCA 94 where Beazley JA (as her Honour then was) stated (at [31]):

In that context, Mr Chapple cited Spectra Pty Limited v Pindari Pty Limited [1974] 2 NSWLR 617, where a clause in an option to renew a lease, which required notice to be sent by pre-paid registered mail, was construed by Wootten J as not stipulating for the sole and essential method of sending notice. Mr Young cited various cases including Buildev Development Pty Limited v PIC Sales Pty Limited [2003] NSWSC 1245 (per Campbell J) and Comdox No 24 Pty Limited v Robins [2009] NSWSC 367 (per Bryson AJ).

Buildev Development Pty Limited v PIC Sales Pty Limited (supra), as here, involved an application, by a grantee of an option to purchase land, to extend the operation of a caveat. The grantee had sent an option extension notice to the solicitors for the grantor. The notice was accompanied, not by a bank cheque as required, but by a personal cheque. There was evidence that the personal cheque would have been met on presentation. Campbell J rejected an argument that the doctrine of substantial performance had any role to play in that context (see at [11]-[13]), and went on to note (at [14]) that it was well established that the conditions for exercise of an option must be precisely fulfilled.

In Comdox No 24 Pty Limited v Robins (supra) at [23], Bryson AJ noted that if particular means for exercising an option are intended to be essential for effective exercise, compliance with the prescribed means is necessary if the stated contractual relationship is to result. His Honour continued:

The statement made by Bryson AJ that compliance, not strict or exact compliance, is required, was unreservedly adopted by Pembroke J in Kavia Holdings Pty Limited v Suntrack Holdings Pty Limited [2011] NSWSC 716 at [20].

In my opinion there is a serious question to be tried that the plaintiff, by sending the letter of 9 September 2015 to the office of SA Teen Solicitor, delivered written notice of exercise of the call option in accordance with clauses 2.1.1(i) and 2.1.4 of the Deed. The letter was certainly delivered to that office, and it is at least reasonably arguable that mere delivery to that office satisfies the requirements of clause 2.1.4 of the Deed. As for clause 2.1.1(i), it is reasonably arguable that the defendant, having received through her solicitor the letter of 9 September 2015 which was accompanied by a contract executed by the plaintiff, would fairly have understood it “in all the circumstances of its receipt” as notice from the plaintiff that it was thereby seeking to exercise the option. Even though the letter made no reference to the email of 2 September 2015, it should be understood in the light of that earlier communication, which clearly foreshadowed that there would be an exercise of the call option and delivery of the signed copy of the contract for exchange on 10 September 2015. The letter of 9 September 2015 itself refers to an exchange of contracts.

I am not satisfied, however, that there is a serious question to be tried that the plaintiff, by delivering only one duly executed copy of the contract, satisfied the requirements of clause 2.1.1(ii). That clause, in its terms, calls for two copies of the duly executed contract to be delivered. The delivery of only one such contract is plainly a failure to comply with the stipulation. Moreover, I do not think it can be said that, on a proper construction of the Deed, compliance with the stipulation was not intended to be essential for the valid exercise of the option. The language of clause 1.2 reveals an intention that the offer constituted by the call option may be accepted “strictly in accordance with the provisions of this Deed”, otherwise the option and offer shall lapse. This leaves very little room for an argument that something less than strict compliance with the specified mode of acceptance may suffice.

The parties have expressly stipulated for a particular mode of acceptance involving the delivery of two duly executed contracts. I do not think this should be regarded as a mere matter of administrative convenience. Nor do I think that the requirement for two contracts to be delivered is a provision which is only for the benefit of the plaintiff. The delivery of two duly executed copies of the contract enables the defendant to execute one of the copies for return to the plaintiff’s solicitor, and to retain the other copy. The defendant is thereby able to retain a copy that bears the signatures of the purchaser and the guarantor under the contract.

I do not think that clause 2.2, which is punctuated and styled so as to appear to give more emphasis to the delivery of the notice of exercise of option than to the delivery of the other documents and the cheque, can overcome the clear words of clause 1.2. Clause 2.2 does not, despite its emphasis, mean that compliance with clauses 2.1.1(ii), 2.1.2 and 2.1.3 (as applicable), or clause 2.1.1(iii), is not required.

In its terms, clause 2.2 requires delivery “in accordance with clause 2”. Insofar as delivery of “the other documents” is concerned, there must be delivery in accordance with clauses 2.1.1(ii), 2.1.2 and 2.1.3 (as applicable). In each case the Deed specifically calls for two copies of the contract to be delivered. To deliver only one copy of the duly executed contract is not a delivery of the other documents in accordance with clause 2. Insofar as delivery of “the cheque” is concerned, there must be delivery in accordance with clause 2.1.1(iii). It is true that if (as in the present case) the Call Option Fee of $250,000 has in fact been paid, no balance of the 10% deposit under the contract remains payable once a credit for the option fee is allowed. In that situation, there is no amount (I do not think that zero can be regarded as an amount) for which a cheque in accordance with clause 2.1.1(iii) can be drawn. As this is something the parties must be taken to have contemplated when the Deed was made, clause 2.1.1(iii) ought be construed as requiring a cheque for the balance, if any, of the 10% deposit that remains payable once a credit for the option fee is allowed. So construed, no cheque is required to be delivered unless some part of the 10% deposit remains payable after a credit for the option fee is allowed. If part of the deposit does remain payable, a cheque for the relevant amount must be delivered in accordance with clause 2.1.1(iii).

As Beazley JA put it in Boreland v Docker (supra), the identification of the requirements for the exercise of an option is a question of construction. In the circumstances of the present case, reading the Deed as a whole and having regard in particular to the language of clause 1.2, I do not think it can be seriously doubted that compliance with clause 2.1.1(ii) was required if the call option was to be validly exercised. Unfortunately for the plaintiff, delivery of only one copy of the duly executed contract was not sufficient to comply with clause 2.1.1(ii).

It follows from the above that I do not think that there is a serious question to be tried that the plaintiff has validly exercised the call option. In these circumstances, and given that the time for exercise of the option has now passed, I am not satisfied that the plaintiff’s claimed interest in the Property as a grantee of an option pursuant to the Deed has or may have substance within the meaning of s 74K(2) of the Real Property Act, and I decline to make an order extending the operation of the plaintiff’s caveat. I further decline to make an order under s 74O of the Real Property Act giving leave to the plaintiff to lodge a further caveat, to claim an interest as the holder of a purchaser’s lien consequent upon the valid exercise of the call option.

The plaintiff should pay the defendant’s costs of the application.