DPG Project 33 Pty Ltd & Anor v Aqualand Chatswood 3 Pty Ltd & Anor

1. [1]

   The plaintiffs, DPG Project 33 Pty Ltd and DPG Project 30 Pty Ltd (together, “DPG”) hold options (“the Options”) from 20 property owners on the site of a proposed development in Chatswood to be known as the “Bertram Development”.

2. [2]

   The Options are subject to an Option Holder Deed dated 12 December 2018 (“the Deed”) made between DPG, the first defendant, Aqualand Chatswood 3 Pty Ltd (“the Developer”) and Aqualand Holding Pty Ltd (“the Assignee”).

3. [3]

   These proceedings, which commenced before me as Commercial List Duty Judge on 10 November 2020, concern the proper construction of the Deed.

4. [4]

   The critical question is whether a “Notice of Exercise of Option” (“the Notice”) that the Developer served on DPG at 4.42pm on 2 November 2020 was effective to enliven the Developer’s right under cl 8.1 of the Deed and to cause an equitable assignment of the Options to the Assignee.

5. [5]

   Because it was urgent that the parties know the answer to this question prior to 4 December 2020, on which date one of the Options will expire, thus potentially putting the Bertram Development in jeopardy, I fixed the matter for hearing on 20 November 2020.

6. [6]

   The Deed was one of a number of documents made on 12 December 2018 concerning the Bertram Development. The others were:

7. [7]

   The parties agreed that the implications of Aqualand Developments’ entitlements under the Power of Attorney should be reserved for future consideration.

8. [8]

   Since execution of these documents, the Developer has paid or caused to be paid to DPG or at DPG’s direction some $24.3 million on account of expenses associated with establishing and preserving the Options.

Principles of Construction

1. [9]

   There is no dispute about the applicable principles.

2. [10]

   They were recently affirmed by the High Court in Electricity Generation Corp v Woodside Energy Ltd [1] :

3. [11]

   Clause 8 of the Deed is, relevantly, in the following terms:

4. [12]

   The question of whether the Notice was effective depends on the answer to a number of questions.

When was the Deed rescinded?

1. [13]

   The first is whether, in the events that have happened, the Deed had “expired” or been rescinded prior to 4.42pm on 2 November 2020.

2. [14]

   In my opinion, the answer to that question is “no”.

3. [15]

   Clause 2 of the Deed deals with its “Operative Term” and is, relevantly, in the following terms:

4. [16]

   The “Commencement Date” was 12 December 2018.

5. [17]

   It is common ground that the “Intention Date” referred to in cl 2(a) was 23 October 2020.

6. [18]

   Clause 2(a) also refers to the possibility that the Developer will serve a “Notice of Intention”, being a notice that it intended to exercise each Option.

7. [19]

   It is common ground that the Developer did not serve a Notice of Intention.

8. [20]

   Pausing there, were cl 2 of the Deed the only relevant clause, it would follow, as DPG contends, that the “operative term” (an expression not itself defined in the Deed) expired on the Intention Date – that is, on 23 October 2020.

9. [21]

   However, consideration must also be given to cl 3 which deals with the circumstances where, as here, the Developer did not serve a Notice of Intention.

10. [22]

    Clause 3 is in the following terms:

11. [23]

    As I have said, the Developer did not serve a Notice of Intention.

12. [24]

    That gave DPG the right to give the Developer a notice under cl 3(b) requesting that the Developer serve a Notice of Intention within five business days.

13. [25]

    That was a right that could only be exercised by DPG after the Nomination Date; after 23 October 2020. That is because the right only arises “if the Developer does not serve a Notice of Intention within the time limit referred to in clause 3(a)”: see the opening words of cl 3(b).

14. [26]

    Clause 3(b) does not specify a time within which DPG must serve such a notice. DPG served a cl 3(b) notice on 26 October 2020, 3 days after the Intention Date. No controversy arises as to whether the notice was timely.

15. [27]

    As the Developer did not, in response to that notice, serve a Notice of Intention, the effect of cl 3(a) was that “this Deed is Rescinded and clause 2(c) will apply”.

16. [28]

    Although the word “Rescinded” appears in cl 3(c), that expression is not defined in the Deed. “Rescind” is defined to mean “to rescind this Deed from the beginning by notice in writing to the other Party”. That definition is not applicable here as the rescission contemplated by cl 3(c) was not one effected by a “notice in writing to the other Party”. It was one taking effect automatically on the satisfaction of the conditions specified in cl 3(c); service by DPG of a cl 3(b) notice and failure by the Developer to serve a Notice of Intention within 5 business days.

17. [29]

    Clauses 2 and 3 of the Deed must be read together. Clause 2 is a general provision and cl 3 is a set of more specific provisions that qualify what would otherwise be the effect of cl 2.

18. [30]

    Service by DPG of the cl 3(b) notice gave the Developer what Mr Williams SC, who appeared with Mr Pokoney for DPG, described as “second chance” to serve a Notice of Intention.

19. [31]

    Clause 3(c) specifies the consequences of the Developer not availing itself of that “second chance”: the “Deed is Rescinded and clause 2(c) will apply”. Although cl 3(c) does not say in terms that in those circumstances the Deed is rescinded at the expiry of DPG’s cl 3(c) notice, the use of the word “is” and the reference to cl 2(c), rather than cl 2(a), compels that conclusion in my opinion.

20. [32]

    I think Mr Jackman SC, who appeared with Mr Gor for the Developer, was correct to submit that in these circumstances the parties must be taken to have intended that the general provision in cl 2 be subject to the specific provision in cl 3. [4]

21. [33]

    In my opinion, the combined effect of the clauses is that, notwithstanding the prima facie position established by cl 2 that the “operative term” of the Deed expired on the Intention Date (23 October 2020), the effect of DPG giving a notice under cl 3(b), and of the Developer not in response serving a Notice of Intention, is that the Deed “is” rescinded five business days after service by DPG of the cl 3(b) notice. This is emphasised by the fact that, in this circumstance, “clause 2(c) will apply” and, thus, adopting the words in cl 2(c), “this Deed is Rescinded”.

22. [34]

    It is common ground that, if that is correct, the Deed was rescinded on 5pm on 2 November 2020.

What was the effect of the Notice?

1. [35]

   What, then, was the effect of service by the Developer of the Notice?

2. [36]

   The chapeau to cl 8.1 refers to DPG having given the Developer an option “to require” DPG to assign its Option Rights to the Developer or its nominee.

3. [37]

   Clause 8.3 specifies the time within which the developer may “exercise the option” in cl 8.1 which act is stated to be “(Election)”.

4. [38]

   It is common ground that the Notice was served within the time specified in cl 8.3.

5. [39]

   The Notice stated, relevantly:

6. [40]

   In oral submissions Mr Williams advanced the argument, not foreshadowed in his and Mr Pokoney’s written submissions, that as the Developer had not served a Notice of Intention either under cl 3(a) of its own motion, or in response to a cl 3(b) notice from DPG, it was not entitled to exercise the cl 8 Option.

7. [41]

   Mr Williams submitted that, read as a whole, the Deed bespeaks the parties’ intention that the Developer give notice of its intention to proceed with the development contemplated by the Deed and, for that purpose of itself exercising the Options, and that the giving of such notice was to be by service of a Notice of Intention. Thus, Mr Williams submitted, absent a Notice of Intention, the Developer had eschewed an intention to exercise the Options and was not entitled to call on DPG to assign the Options to it.

8. [42]

   The difficulty I see with that argument is that it involves reading into the Deed words that are not present; for instance a qualification to cl 8 to the effect ”subject to service by the Developer of a Notice of Intention”.

9. [43]

   Mr Williams pointed to cl 3(a)(1) which specifies that a Notice of Intention must state that the Developer:

10. [44]

    But that provision speaks of the Developer “reserving” its rights under cl 8, not of those rights being subject to service of a Notice of intention.

11. [45]

    In relation to cl 8 itself, Mr Williams submitted that:

12. [46]

    Thus Mr Williams submitted that the service by the Developer of the cl 8 notice at 4.42 pm on 2 November 2020 did not effect an assignment in equity of the Options, [5] and that any right of the Developer to perfect the assignment ceased to exist when the Deed stood rescinded at 5.00 pm on 2 November 2020. [6]

13. [47]

    Mr Williams emphasised that there must have been some act by DPG to give effect to an assignment of the Options and that the invocation by the Developer of it entitlement under cl 8 to “require” such an assignment was not sufficient.

14. [48]

    But that submission does not take account of the fact that, by cl 8, DPG had already granted the Developer the option of requiring it to either assign the Options to it or its nominee or to nominate it or its nominee as “nominee under each Option Agreement”.

15. [49]

    As the wording in cl 8.3 makes clear, the effect of service by the Developer of the cl 8.1 notice was to exercise that option:

16. [50]

    In my opinion, the words in cl 8.1 constituted a statement by DPG of its intention that, were the Developer to exercise that option, DPG would assign the subject of the option, the Options themselves, to the Developer; and do so there and then.

17. [51]

    It is common ground that to effect an equitable assignment it must be shown that the assignor expressed the intention to dispose of the proper immediately. [7]

18. [52]

    For the reasons I have set out, that is this case.

19. [53]

    The Developer did exercise that option and DPG, there and then, became bound to do what it had promised to do: assign the Options to the Developer’s nominee; the Nominee.

20. [54]

    The fact that the Deed stood rescinded 17 minutes later does not affect this result.

21. [55]

    Mr Jackman accepted that, if that be correct, the “money paid under the [Deed] by or on behalf of [the Developer] will lie where it has fallen”.

22. [56]

    In those circumstances, it is not necessary for me to determine what the consequences would have been, so far as concerns the $24.3 paid to or at DPG’s direction, had I reached a different conclusion.

23. [57]

    The question is whether service of the Notice was an effective assignment of the Option Rights in equity. In my opinion it was.

24. [58]

    I declare that:

    1. (1)

       By the Notice of Exercise of Option dated 2 November 2020, executed by the defendants and sent to the plaintiffs at 4.42pm on 2 November 2020, the plaintiffs assigned the Option Rights (as that term is defined in the Option Holder Deed dated 12 December 2018 made between the plaintiffs and the first defendant) to the second defendant.

25. [59]

    The parties should now confer and agree on such other orders as are necessary to give effect to these reasons.