David v Ryan & Ors

1. [1]

   The township and district of Tilpa are situated north west of Cobar and north east of Wilcannia in the far western region of New South Wales. In 1994 Mr Bernard David and members of the Ryan family commenced a farming and grazing partnership, “the Mount Kew Pastoral Co” partnership, in Tilpa. They incorporated their partnership agreement, giving Mr David a one half share and the Ryan family the other half, into a deed (“the 1994 Partnership Deed”).

2. [2]

   Their partnership was conducted on four Tilpa properties; either owned in freehold title or held under Western Lands Leases by Mr David and the Ryan family. These four properties are known as “Rosedale”, “Mount Kew”, “Box Valley”, and “Nangara”. Mr David owned and held all the land comprising Nangara. The other three properties were held jointly between the Ryan family and Mr David.

3. [3]

   By 2016 the parties had fallen into dispute about the terms on which they would end their partnership. They ultimately agreed by a Deed of Dissolution of Partnership (“the 2017 Dissolution Deed”), executed on 10 February 2017, that the Mount Kew Pastoral Co was dissolved on 31 August 2016. The 2017 Dissolution Deed superseded and took priority over the 1994 Partnership Deed in the governance of their mutual relations.

4. [4]

   Now further disputes have broken out between Mr David and members of the Ryan family about the construction of an option for purchase conferred under the 2017 Dissolution Deed, clause 5 (“the Clause 5 Option”). This judgment resolves that dispute, in favour of Mr David and against the surviving members of the Ryan family.

5. [5]

   The point at issue is whether members of the Ryan family could immediately exercise this Clause 5 Option upon the execution of the 2017 Dissolution Deed, or whether they could only exercise it after an executed form of Option Deed, provided for in Annexure D of the 2017 Dissolution Deed, had been physically delivered to Mr David upon the completion of the 2017 Dissolution Deed. In substance, the issue was whether the Clause 5 Option was immediately available for exercise or whether the right was deferred until after completion of the 2017 Dissolution Deed.

6. [6]

   The disputes in these proceedings originally related to a wider range of issues than this. But the other issues have now been resolved. Mr David brings these proceedings as plaintiff. The Ryan family members are the defendants, who propound a cross-claim back against Mr David.

7. [7]

   Mr M Ashhurst SC and Mr D L Warren of counsel, instructed by Beyond Property Legal Solutions, appear for the plaintiff, Mr David. Mr S Chapple and Ms L Nurpuri of counsel, instructed by Peacockes Solicitors, appear for the members of the Ryan family, the defendants and cross-claimants. The Court has been greatly assisted by the submissions of counsel, which have enabled the Court to give judgment two days after the hearing.

The Dissolution of the Mount Kew Pastoral Co Partnership

1. [8]

   The parties to the Mount Kew Pastoral Co have changed over time. The original parties to the 1994 Partnership Deed were: Mr Bernard David as to one half share and the other half share was divided equally among the Ryan family. Mr James Edward (“James”) Ryan, Mrs Rona Ryan, Mr Anthony James (“Tony”) Ryan and Mrs Sandra Tracey (“Sandra”) Ryan each had a one eighth share in the partnership. Mr James Ryan and Mrs Rona Ryan are now deceased.

2. [9]

   The partnership operated for a period of 22 years between 1994 and 2016. Mrs Rona Ryan died on 21 October 2012. Between then and the dissolution of the Mount Kew Pastoral Co, the parties were in dispute about whether Mrs Rona Ryan’s death dissolved the partnership under Partnership Act 1892, s 33 or whether it continued to operate under the terms of the 1994 Partnership Deed.

3. [10]

   Mr James Ryan became the executor of Mrs Rona Ryan’s estate and inherited her share of the partnership. Since her death it has been claimed by the Ryans that Mr James Ryan held a one quarter share, Mr Tony Ryan a one eighth share, and Mrs Sandra Ryan a one eighth share in the Ryan family’s other half of the partnership. The 1994 Partnership Deed, clause 1 permitted a partner to give a notice of dissolution of partnership. Mr David gave that notice on 25 February 2016. In response, Mr Tony Ryan and Mrs Sandra Ryan gave a notice under the 1994 Partnership Deed, clause 10 communicating that they wished to exercise their right to purchase Mr David’s share in the partnership. But Mr David disputed their notice. This became the origin of one of the early issues dividing the parties in the partnership dissolution.

4. [11]

   Mr James Ryan, the third defendant, died after these proceedings were commenced. At the commencement of the hearing the parties dealt with the procedural consequences of his death. Probate of his will (Exhibit A) has not been granted. Mr James Ryan’s will appoints Mr Tony Ryan and Mrs Sandra Ryan, the first and second defendants, as executor and executrix respectively of his estate. Mr Tony Ryan and Mrs Sandra Ryan do not intend to apply for probate. The parties sought by agreement that the Court make orders under Uniform Civil Procedure Rules 2005 (“UCPR”), r 7.10(2)(a) that these proceedings continue against Mr James Ryan’s estate in the absence of a representative of the estate. The Court made the orders. As a result, the declarations and orders made in these reasons bind James Ryan’s estate: UCPR, r 7.10(3).

5. [12]

   These reasons from time to time refer to the parties to the proceedings who are members of the Ryan family as “the Ryans”. The expression when used about a time before Mr James Ryan’s death refers to all three defendants. But for all times after his death, the expression only refers to Mr Tony and Mrs Sandra Ryan.

6. [13]

   The fact that the four properties, Rosedale, Mount Kew, Box Valley, and Nangara are held in different ownership drove much of the structure of the parties’ negotiations for the dissolution of Mount Kew Pastoral Co and in turn, the structure of the 2017 Dissolution Deed itself. As earlier indicated Mr David is the sole registered proprietor of the freehold titles and is the lessee under the Western Land Leases of all the lands comprising the property known as Nangara.

7. [14]

   But during the partnership the Ryan family members were the registered proprietors of the freehold titles and lessees under the Western Land Leases of a one half interest in each of the other properties, Rosedale, Mount Kew and Box Valley, with Mr David. These three properties, at the time of dissolution of the partnership, were owned as to one half by Mr Bernard David and as to the other half by the surviving Ryan family members (after the death of Mrs Rona Ryan), namely by Mr James Ryan (it is claimed) as to one quarter share, and each of Mr Tony Ryan and Mrs Sandra Ryan as to one eighth share.

8. [15]

   The partners at the time of the dissolution of the Mount Kew Pastoral Co were parties to the 2017 Dissolution Deed: Mr David, and Mr James, Mr Tony and Mrs Sandra Ryan.

9. [16]

   The 2017 Dissolution Deed broadly provided: that the partnership was dissolved on 31 August 2016; partnership accounts would be prepared up to 31 August 2016, on the assumption that Mt Kew, Box Valley, Rosedale, and various other assets were partnership assets; Mr David would receive the proceeds of sale of Mount Kew and Box Valley, subject to a payment of $30,557.50 to Mr Tony and Mrs Sandra Ryan; and Mr David’s interest in Rosedale be transferred to Mr Tony and Mrs Sandra Ryan as joint tenants.

10. [17]

    On completion of the Deed (defined as a date 14 days after service upon Mr Tony and Mrs Sandra Ryan of the Minister’s Consent to the transfer of Rosedale to them) Mr David was to receive his interest in the partnership calculated from the partnership accounts, less $2.75 million (being the agreed value of Mt Kew and Box Valley). Mr David would also Lease/Sub-Lease Nangara to Mr Tony and Mrs Sandra Ryan for a period of five years from 1 September 2016 at a rent of $1,500 per week plus GST. And Mr David would grant to Mr Tony and Mrs Sandra Ryan an option to purchase Nangara for 50 per cent of its market value, as at the date of exercise of the option.

11. [18]

    In the early stages of their partnership break-up, these parties contested a number of matters: what properties were or were not partnership assets; and what expectations had been raised between the partners over time about the future disposition of partnership and non-partnership real estate. Such disputes had resulted in Mr Tony and Mrs Sandra Ryan lodging caveats over the Nangara titles. These various disputes are adequately described in the Recitals K, L, M, N, O, P and V to the 2017 Dissolution Deed, which essentially resolved them.

12. [19]

    Recitals K to P of the 2017 Dissolution Deed provide as follows:

13. [20]

    Recitals U to W foreshadowed that the operative parts of the 2017 Dissolution Deed would resolve the parties’ dispute in a way that included the arguments about Nangara, as follows:

14. [21]

    Recital X reflected an important agreement about when completion would occur under the 2017 Dissolution Deed:

15. [22]

    The operative provisions of the 2017 Dissolution Deed fall into three main sections: (1) valuing and distributing partnership assets (clauses 2 and 3); (2) conferring rights of Lease and purchase in favour of the Ryans over the non-partnership property, Nangara (clauses 4, 5 and 6); and (3) various machinery provisions (clauses 7 to 23). The 2017 Dissolution Deed is structured to keep the main architecture of the agreement between the former partners of the Mount Kew Pastoral Co separate from the various instruments (the valuations, the Lease, the Sub-Lease, and the option agreement) that would give effect to that agreement.

16. [23]

    The 2017 Dissolution Deed first provided for the valuation and distribution of partnership assets. Clause 2 dealt with the dissolution of the Mount Kew Pastoral Co Partnership and the valuation of its undisputed assets. Clause 2(a) and 2(b)(i),(ii) and (iii) are as follows:

17. [24]

    Clause 2(c) and (d) are as follows:

18. [25]

    The 2017 Dissolution Deed, clause 3 dealt with the disposition of the real estate that all parties acknowledged was an asset of the Mount Kew Pastoral Co, the three properties, Mount Kew, Box Valley and Rosedale, and then the distribution of other partnership assets. As to the real estate, Mr David took the benefit of Mount Kew and Box Valley, and the Ryans acquired Rosedale, which they apparently intended to use for agricultural purposes in conjunction with Nangara. Clause 3(a) provides as follows:

19. [26]

    Clause 3(b) provides as follows:

20. [27]

    Clause 3(d) provides for an exchange of titles at completion that would give effect to the major separation of the parties’ partnership assets, as follows:

21. [28]

    The 2017 Dissolution Deed next provided (in clauses 4, 5 and 6) for the conferral of rights of lease and purchase in favour of the Ryans over the non-partnership property, Nangara. By the 2017 Dissolution Deed, clause 4 Mr David agreed to lease the Nangara properties to Tony and Sandra Ryan, for five years commencing 1 September 2016 with a five year option at a fixed rent per annum of $77,797.20 plus GST, on the following Terms. Clause 4 provided as follows:

22. [29]

    The 2017 Dissolution Deed, clause 5 granted an option to purchase Nangara upon the terms set out in Annexure D, which was in the form of an "Option to Purchase" (and which form of option is described in these reasons as “the Annexure D Option”). Clause 5 provides as follows:

23. [30]

    Clause 6 provides for the execution of the Lease and the Sub-Lease of Nangara and the Annexure D option as follows:

24. [31]

    Some other provisions of the 2017 Dissolution Deed assisted in its proper construction. Clause 9 provided for the withdrawal of an existing caveat over Nangara and for the form of a new caveat agreed between the parties (Annexure E) on “Completion” as defined under the 2017 Dissolution Deed. The differences between these caveats will be described shortly. Clause 9 provided as follows:

25. [32]

    Clause 23 anticipated that difficulties might arise in interpreting a Deed structured in the manner of the 2017 Dissolution Deed, which had annexed to it Lease, Sub-Lease and option documents. Clause 23 provided for a hierarchy of precedence in the interpretation of these various components of the 2017 Dissolution Deed:

26. [33]

    The content of the annexures to the 2017 Dissolution Deed shall now be dealt with in these reasons in the order of precedence that clause 23 prescribed: the Annexure D option, then the Annexure B Lease, and Annexure C Sub-Lease.

27. [34]

    The 2017 Dissolution Deed provided for the removal of an existing caveat on Nangara (Caveat AK921555) and for the imposition of a further caveat on the title, the form of which was in Annexure E to the 2017 Dissolution Deed. The unsigned caveat and Annexure E nominated Mr Anthony and Mrs Sandra Ryan of Rosedale, Tilpa as caveators and Mr David as a registered proprietor. The land referred to in the Annexure E caveat was all the freehold title in Nangara. In Schedule 1 to the Annexure E caveat the “estate or interest claim” was as follows:

28. [35]

    In Schedule 1, the instrument which is named as conferring the interest in question was the “Deed of Dissolution” between Mr David, Mr James, Mr Tony and Mrs Sandra Ryan, although the date of the instrument was not specified in the caveat. That is no doubt because the form of Annexure E was prepared before execution of the 2017 Dissolution Deed.

29. [36]

    Annexure D to the 2017 Dissolution Deed set out the full terms of the option agreed to under Clause 5, the Annexure D Option. The Annexure D Option recites at Recital C that “the Grantor agreed to enter into a Lease/Sub-Lease of the Property in favour of Tony and Sandra [Ryan] jointly, for a term of five (5) years commencing on 1 September 2016, together with an option to renew for a further five (5) years”.

30. [37]

    Recital D noted that “the Grantor has agreed to grant [Mr Tony and Mrs Sandra Ryan] an Option to Purchase the whole of the freehold part of the Property and his interest in the Perpetual Leases part of the Property on the terms specified in this Deed”.

31. [38]

    The Annexure D Option, clause 2 provided for a grant of an option in the following terms:

32. [39]

    The Annexure D Option, clause 3 provided for the manner of exercise of the option:

33. [40]

    The Annexure D Option, clause 4 provided for the calculation of the purchase price upon the exercise of the option:

34. [41]

    Clause 5(a) and (f) provided other machinery provisions to support the grant of the option:

35. [42]

    The Annexure D Option was unsigned and undated at the time the parties executed the 2017 Dissolution Deed.

36. [43]

    The Option encompassed property, including a location called “Nangara Bend”, that was additional to the land covered by the Lease. Clause 3 of the Lease provided that, until there was a valid termination or surrender of the Lease, or six months after the death of the lessor (Mr David), “[that] part of [the Nangara property] comprising approx. 20 acres and a homestead known as ‘Nangara Bend’ (the entire Lot and improvements…)” would be reserved for the exclusive use of Mr David.

37. [44]

    The 2017 Dissolution Deed also contained a Lease and Sub-Lease of Nangara. The essential terms of those Leases have already been set out in the 2017 Dissolution Deed itself and do not require repetition. Only clause 16 of the Lease and Sub-Lease were of significance to the construction submissions made to the Court.

38. [45]

    Clause 16 of the Lease and the Sub-Lease provide as follows:

39. [46]

    Less than a month after the 2017 Dissolution Deed the Ryans purported to exercise the Clause 5 Option. A letter dated 8 March 2017 from their solicitor enclosed a Notice of Exercise of Option signed by Mr Tony Ryan and Mrs Sandra Ryan dated 3 March 2017. Their solicitors’ covering letter suggested that an appropriate market value for Nangara was $5 million. The Notice of Exercise of Option was crafted to conform with the requirements of clause 3 of the Annexure D Option.

40. [47]

    On 20 March 2017, Mr David’s solicitor responded, referring to the Notice of Exercise of Option and observing that:

41. [48]

    On 13 April 2017, Mr David’s solicitor further responded, stating that in Mr David’s view, the appropriate market value of Nangara was “at least $7 million”. He offered to settle the purchase on that basis. In the event that the market value was not agreed, Mr David asked that he be provided with the names of three valuers to consider, for the purpose of preparing a formal valuation.

42. [49]

    On 30 May 2017, Mr Tony and Mrs Sandra Ryan submitted to Mr David an application to the President of the Australian Property Institute for the appointment of a valuer to conduct a valuation of Nangara.

43. [50]

    On 20 June 2017, Mr David changed position. His solicitor advised the solicitor for Mr Tony and Mrs Sandra Ryan that day that they had not exercised the option to purchase Nangara. Mr David then took an aspect of the point that has been debated in this hearing:

44. [51]

    Further correspondence was exchanged. The parties set out their respective positions about the purported exercise of the option. The parties accept in these proceedings that at the time the Ryans purported to exercise the option, neither the date of ‘completion’ of the 2017 Dissolution Deed (as that term is defined in Recital X) nor the delivery of all the documents referred to in clause 3(d) of the Deed had taken place.

45. [52]

    On 3 October 2017, Mr David filed a Summons seeking declaratory and consequential relief: that $4.1 million, held in the controlled moneys account of Mr David’s solicitor, be paid to Mr David; a declaration as to the amount payable to Mr David on completion of the 2017 Dissolution Deed; and a claim for a decree that the 2017 Dissolution Deed be specifically performed.

46. [53]

    On 10 November 2017, Mr Tony and Mrs Sandra Ryan filed a Cross-Summons. They also sought a declaration as to the amount payable to Mr David on completion of the 2017 Dissolution Deed, and a further declaration that “… pursuant to clause 5 of the deed, the Cross-Claimants exercised an option to purchase ‘Nangara’ on 3 March 2017”.

47. [54]

    Mr David filed an Amended Summons on 23 February 2018. It adjusted the sum said to be owed to Mr David. And the Amended Summons sought additional declarations: that the option to purchase Nangara would only be binding and effective from the time of completion of the 2017 Dissolution Deed and from the delivery of the Annexure D Option, signed by Mr David; and that the option to purchase Nangara cannot be exercised before completion of the 2017 Dissolution Deed and the delivery to the Ryans of the signed form of Annexure D Option.

48. [55]

    The parties resolved part of their dispute. On 1 June 2018, Darke J made orders and notations agreeing on and recording: the net amount owing by Mr Tony Ryan and Mrs Sandra Ryan to Mr David pursuant to clause 2(d) of the 2017 Dissolution Deed at $2,792,518; additional sums to be paid to Mr David on account of interest and costs; final payment of a bank cheque for these sums by 29 June 2018 (and interest thereon if unpaid); and that upon payment of the whole amount owing to Mr David, he should deliver to the Ryans signed Transfers of Rosedale to them with Minister’s Consents; signed water licences transfers; the Annexure D Option signed by Mr David; and a signed Lease and Sub-Lease for Nangara in the form set out in the 2017 Dissolution Deed Annexures B and C.

49. [56]

    These consent orders mean that completion of the 2017 Deed of Dissolution is now due to occur this Friday, 29th June 2018.

50. [57]

    His Honour further ordered that the hearing of the proceedings shall be limited to the relief sought by the Plaintiff in paragraph 7A and 8(b) of the Amended Summons and of the Cross-Claim filed by the Ryans. Other costs orders were also made.

51. [58]

    Mr David subsequently did not press the relief in 8(b) of the Amended Summons. The only remaining issue between the parties is now in Prayer 7A of the Amended Summons and Prayer 2 of the Cross-Summons: whether or not the option to purchase Nangara was (or could be) exercised by Mr Tony and Mrs Sandra Ryan on 8 March 2017.

52. [59]

    The 2017 Dissolution Deed and its Annexures are all part of a commercial agreement. There are many appellate pronouncements as to how courts should construe commercial contracts. I am guided by one of the most recent of these, the High Court’s decision in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (“Woodside”) where the majority (French CJ, Hayne, Crennan, and Kiefel JJ) described the approach to construction of a commercial contract in the following way (omitting footnotes):

53. [60]

    In his Honour’s dissenting judgment in Woodside, Gageler J compactly expressed the same idea at [53], as follows:

54. [61]

    These principles were restated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52].

55. [62]

    This judgment does not call for any further discussion of the principles of the construction of commercial contracts. The 2017 Dissolution Deed is a reasonably well-crafted document. Despite the present disputes, its provisions are drafted in a way that conveys clear meaning and, as these reasons show, can be construed in a way that clearly defines the obligations of each party.

Submissions and Analysis

1. [63]

   The Court first sets out the Ryans’ submissions and then Mr David’s submissions. The Court has found the latter to be the more persuasive and has adopted their analysis.

2. [64]

   The Ryans submit that clause 5 takes immediate effect on execution of the 2017 Dissolution Deed. They submit this is quite clear from the inclusion of the phrase, “hereby grants”. They submit the plain meaning of that phrase, expressed as it is in the present tense, is that the option rights in clause 5 are conferred upon Mr Tony and Mrs Sandra Ryan immediately. The grant of option rights is not made contingent upon any other event.

3. [65]

   Mr Chapple rightly concedes on behalf of the Ryans that on their construction there is some degree of tension between clause 5 of the 2017 Dissolution Deed and clause 3(d)(ix), which provides that on “completion” of the Deed, the parties agree that among the items that “will be delivered to the solicitors for [Mr] Tony and [Mrs] Sandra [Ryan]”, is the “Option to Purchase ‘Nangara’, a copy of which is annexed hereto”. The tension is that clause 5 appears to make an immediate grant of an option but clause 3(d)(ix) requires a formal signed Annexure D Option to be provided later on completion.

4. [66]

   But the Ryans submit that any tension between clause 5 and clause 3(d) is resolved by the 2017 Dissolution Deed, clause 6 and that resolution is one of the functions of clause 6. The Ryans submit that clause 6 is critical to the question in the present proceedings, because it confirms the primacy and immediacy of the rights conferred in clause 5.

5. [67]

   They submit that clause 6 affirms that “by this deed [Mr David] has granted… the Option to Purchase referred to in clauses 4 and 5”. That is, they say, the rights in clause 5 are expressly acknowledged as already existing (and not being prospective or conditional). Further, they submit clause 6 is introduced by the word, “Notwithstanding”, which makes clear that the additional procedural steps identified in clause 6, sub-clauses (a) and (b) are to be undertaken in addition to and do not derogate from the rights conferred in clause 5. These steps, they say, are thereby signalled as being purely procedural.

6. [68]

   Thus they submit that on and from execution of the Deed, Mr Tony and Mrs Sandra Ryan had a right to exercise the option on the terms set out in clause 5 and Annexure D to the Deed and that they did so validly in March 2017.

7. [69]

   The Ryans also submit that the construction of clause 5 that they propound is consistent with the 2017 Dissolution Deed, when viewed as a whole. They submit that in some commercial contracts ‘completion’ can refer to a point at which the parties’ legal obligations crystallise. The word does not have special inherent meaning. But the language and structure of particular contracts can provide for certain obligations to take effect on and from a particular date, which may be called ‘completion’ in some contracts.

8. [70]

   But, the Ryans submit, no such language is used in the 2017 Dissolution Deed. Indeed, they say the opposite is true: the 2017 Dissolution Deed expressly moulds the parties’ obligations, and grants to the parties substantive rights to take effect prior to the date for completion. The most relevant examples of this in the 2017 Dissolution Deed to which the Ryans point are:

9. [71]

   The Ryans submit clause 4 is a particularly important signpost to their construction because, like clause 5, it specifically relates to the land at Nangara. They submit that it is clear from the features of the 2017 Dissolution Deed that the partnership was dissolved from 31 August 2016, the term of the Lease of Nangara was to take effect from 1 September 2016, and the terms of clause 4, show that the parties intended for the Lease/Sub-Lease to be in force prior to completion, and that rent would be payable prior to completion. In those circumstances, there can be no doubt, it is said, that the Lease granted pursuant to clause 4 takes effect immediately in equity in accordance with the principles in Walsh v Lonsdale (1882) 21 Ch D 9. The immediate operation of the Lease in clause 4 is confirmed by the operation of clause 6, which deals with both the clause 4 Lease and the Clause 5 Option. They submit the Clause 5 Option operates in the same way as the clause 4 Lease: it is operative immediately in equity.

10. [72]

    In conclusion, the Ryans submit that notwithstanding that by clause 6 the 2017 Dissolution Deed required formal documentation to be provided upon ‘completion’, it conferred on the Ryans substantive rights upon execution. Those rights include the grant of an option on the terms set out in clause 5 and Annexure D to the Deed. Once this is accepted, they submit that as the Lease and the Sub-Lease were on foot, it follows that the exercise of the option by the Ryans on 8 March 2017 was available to them and their exercise of it was valid.

11. [73]

    The Court finds the submissions Mr Ashhurst SC has advanced on behalf of Mr David to be the more persuasive. So, the Court’s analysis in this section incorporates those submissions.

12. [74]

    Mr David submits that clause 5 of the 2017 Dissolution Deed cannot be construed as an immediate grant of an option upon signing of the Deed of Dissolution. Likewise Mr David submits that clause 4 is not an immediate grant of a lease.

13. [75]

    Mr David maintains that any exercise of the option could on the proper construction of the 2017 Dissolution Deed only take place after Completion of the Deed of Dissolution by the simultaneous execution of the various acts provided for in clause 3(d). And completion will require:

14. [76]

    Mr Ashhurst SC propounds three main arguments in support of Mr David’s construction. First, although the wording in clause 5 of the 2017 Dissolution Deed uses the expression "hereby grants an option" and in clause 6 "Notwithstanding that [Mr David] has granted the Lease, Sub-Lease and option to purchase", the 2017 Dissolution Deed clearly contemplates that there will be a subsequent formal execution and delivery of both the Lease and option to purchase on Completion of the Deed, as is described in the balance of clause 6, and in the provisions of clause 3(d).

15. [77]

    If the Lease Clause 5 Option had been initially granted and were immediately legally operative upon execution of the 2017 Dissolution Deed, the delivery of a signed Lease and the Annexure D Option as contemplated by clauses 6(a), 6(b) and 3(d) would be entirely otiose. If the Ryans’ argument is correct, the requirements of clause 6(a) and (b) for such delivery would be but an empty ceremony.

16. [78]

    In my view, clauses 5 and 6 constitute a contract that upon the taking of certain positive steps at completion in accordance with clause 3(d)(ix) Mr David agreed he would grant a legally effective option but there was no immediate grant of a legally effective exercisable option with the 2017 Dissolution Deed.

17. [79]

    But an argument against Mr Ashhurst SC’s contention is based on the chapeau to clause 6 the words, “has granted” cover “the Lease, Sub-Lease and Option to Purchase referred to in clauses 4 and 5”. If it is arguable that a lease in equity is already created by clause 4, then it is equally arguable that an option is created in equity by clause 5 and that clause 6(a) and (b) truly are formalities.

18. [80]

    But Mr Ashhurst SC answers this by pointing to the words “promptly” that appears in clause 6(a) but not in clause 6(b). He advances a persuasive submission that this word indicates that the clause 4 Lease was intended to become effective immediately and that is why execution of the Lease needed to be performed “promptly”. In my view, further in support of the distinction between the treatment of the Lease and the Option are the words in clause 6(a) “and the parties agree that the parties acknowledge that the Lease and Sub-Lease are registrable and may be registered by [Mr] Tony and [Mrs] Sandra [Ryan]”. These words may found an immediate right to caveat to protect the Lease on execution of the 2017 Dissolution Deed. But the absence of any of that apparatus in clause 6(b) distinguishes the Option from the Lease and points to the conclusion that the Option was only to be operative upon the later execution and delivery of a document in the form of the Annexure D Option.

19. [81]

    Mr Ashhurst SC’s second point is that clause 23 of the 2017 Dissolution Deed provides that if there is any conflict between the provisions of the 2017 Dissolution Deed, the Leases and the Annexure D Option that the order of priority in interpretation shall be the Annexure D Option followed by the Leases and then the 2017 Dissolution Deed itself.

20. [82]

    But in my view the Annexure D Option in clause 2 clearly refers to the first grant of an option. It does not refer to or assume that any form of enforceable option already exists for which the Annexure D Option is only a formal procedural record. The only reasonable way to read the form of Annexure D Option as a whole is that the option is granted only on execution by the grantor and grantee of that Annexure D form of option.

21. [83]

    And the timing of the exercise of the Annexure D Option is important. Clause 4(a) of the Annexure D Option fixes the purchase price of the property at “fifty per cent (50%) of the current market value of the property at the time of service of the notice [of exercise]”. If the Ryans’ submissions are correct that notice can be served and the market value fixed at any time before completion of the 2017 Dissolution Deed. If Mr David is correct that notice can only be served and the market value fixed after completion. The competing contentions set up a direct conflict in relation to the calculation of the value of Nangara on exercise of the Option. In my view, clause 23 of the 2017 Dissolution Deed commands that the timing and therefore the price of Nangara will be determined in accordance with the Annexure D Option, which contemplates the first grant and exercise of the option upon execution and delivery of the Annexure D Option and not before.

22. [84]

    Finally, Mr Ashhurst SC submits that clause 9 of the 2017 Dissolution Deed assists Mr David’s construction. Clause 9 permits the registration of a caveat which would record and protect the grant of the option. The agreed form of the caveat is in Annexure E. Mr David consents to that caveat being lodged only from completion. That means that, as the registered proprietor of Nangara, he would be entitled to issue a lapsing notice in respect of any such caveat lodged before completion. That is quite inconsistent with the idea that enforceable rights to an option arise immediately upon execution of the 2017 Dissolution Deed. Indeed, if the Ryans’ construction were correct, clause 9 would have to permit the filing of the caveat that could not be removed at any time from execution of the 2017 Dissolution Deed. The parties clearly contemplated the later filing of the caveat to protect the option, which in my view is a strong signpost of the timing from which it commenced to be effective.

23. [85]

    In my view, the 2017 Dissolution Deed is structured this way for the simple commercial reason that Mr David did not want to lose Nangara before he received his partnership payout upon dissolution and that this structure makes sure that all the other steps towards partnership dissolution are promptly taken by the Ryans if they want to take the benefit of the option over Nangara.

24. [86]

    A result of the Court’s analysis is that the completion which is now scheduled to take place on 29 June 2018, that is tomorrow, should (unless the obligation is expressly waived by the parties) include the provision by Mr David of an executed copy of the Annexure D Option. It is possible, should the Ryans so choose for them to immediately exercise that option or to do so at any time during the term of the Lease and the Sub-Lease. Should any issues arise in relation to settlement or any other matter in relation to the working out of the declarations and orders made (for example if a supplementary specific performance order were to be required) the Court grants liberty to apply in the orders below.

Conclusions and Orders

1. [87]

   For these reasons, the Court makes the following declarations and orders:

   1. (1)

      Declare that on the true construction of the Deed of Dissolution made between the plaintiff and the first, second and third defendants on 10 February 2017 (“the 2017 Dissolution Deed”) that the option to purchase all the lands comprising “Nangara” provided for in clause 5 and Annexure D of the 2017 Dissolution Deed will only be binding and effective, and therefore may only be exercised, from “completion” as defined by the 2017 Dissolution Deed and upon the delivery of the option in the form of the said Annexure D, signed by the plaintiff.

   2. (2)

      The Amended Summons and the Cross-Claim are otherwise dismissed.

   3. (3)

      Order that the defendants/cross-claimants pay the plaintiff/cross-defendant’s costs of the determination of the issues decided by this judgment.

   4. (4)

      Grant liberty to apply to the Real Property list judge, Darke J, or to Slattery J, on 1 day’s notice.