Hobhouse v Macarthur-Onslow

1. [1]

   WARD P: I agree with Macfarlan JA.

2. [2]

   MACFARLAN JA: This appeal concerns an option to purchase an apartment in Darling Point, Sydney (“the Apartment”). The option was contained in cl 5.6 of a Deed of Settlement and Release (“the Deed”) entered into between Ms Hobhouse (the appellant), the late Mr Lee Macarthur-Onslow and other parties on 22 February 2021. The first respondent is Mr Macarthur-Onslow’s executor and the second respondent is the owner of the Apartment. The primary judge held that during his lifetime Mr Macarthur-Onslow validly exercised an option in his favour contained in the Deed. Ms Hobhouse contends that he did not and that she is, or at least was, entitled to exercise a similar option which was stated to be available in the event that Mr Macarthur-Onslow did not exercise his option.

3. [3]

   For the reasons appearing below, I have concluded that Mr Macarthur-Onslow did not validly exercise his option and that his executor is not entitled to the relief against forfeiture that he seeks. As a result, the appeal should be allowed.

The Deed of Settlement and Release

1. [4]

   There are nine parties to the Deed. It is expressed to be in settlement of Supreme Court proceedings brought by Ms Hobhouse against a number of them. It makes detailed provision in respect of various parcels of valuable real property, including the Apartment. One of the parties to the Deed is Mr Stephen Rogers who is an accountant and is given certain roles under it.

2. [5]

   The Apartment is dealt with in cl 5 which is in the following terms:

3. [6]

   The reference in cl 5.1 to the “Homestead Lot” is to a rural property which is the subject of cl 3 of the Deed. Under the detailed provisions of that clause, Ms Hobhouse is given a right to occupy the Homestead Lot on certain terms and conditions. By cl 3.8 she is also given a call option to purchase the Homestead Lot (through her company) at a price of $40,000,000, with the following further provisions being applicable:

4. [7]

   Clause 8 contains the following provisions relevant to Kalemon Investments Pty Ltd (the second respondent in the present proceedings, the owner of the Apartment and a party to the Deed):

5. [8]

   Three further rural properties (“Calamondah”, “Deersbrook” and “Southlands”) are the subject of cl 9.

6. [9]

   General provisions relating to options and other rights granted by the Deed are contained in cl 12 which is relevantly as follows:

Mr Macarthur-Onslow’s purported exercise of the Apartment option

1. [10]

   Following the making of the Deed on 22 February 2021, Mr Rogers, on 25 February 2021, sought valuations of the Apartment from two different valuers, with a view to him calculating the “midpoint valuation” in accordance with cll 5.6 and 8.1(d). One valuer (Sotheby’s) provided a valuation (at $4.25–$4.5million) on 23 March 2021 but the other valuer did not provide a valuation within 60 days of the date of the Deed (that is, by 23 April 2021).

2. [11]

   Mr Rogers could not, and therefore did not, calculate the “midpoint market value” by the date of expiry of Mr Macarthur-Onslow’s option. By reason of cl 5.6 the option needed to be exercised within the same period as Ms Hobhouse’s option under cl 3.10 (that is, within 60 days of the date of the Deed) or by the date of Mr Macarthur-Onslow’s death, whichever was the earlier (Mr Macarthur-Onslow did not die until August 2021, which was well after the expiration of 60 days from the date of the Deed). In these circumstances, the price at which the option was exercisable could not be, and was not, calculated prior to the last day for its exercise. Therefore a “cheque for the deposit payable under the respective Contract” as referred to in cl 12.2(d) could not be provided.

3. [12]

   Mr Macarthur-Onslow however purported to exercise the option by submitting a notice of exercise and two signed contracts for sale on 22 April 2021. He also submitted a cheque for $437,500 (being 10% of the midpoint of the two amounts in the Sotheby’s valuation) on 23 April 2021. It was not contended on appeal that the payment made on 23 April 2021 constituted payment of the required deposit within 60 days of the date of the Deed. That amount was calculated by reference to the Sotherby’s valuation alone and not to the two valuations to which cl 8.1(d) referred.

4. [13]

   It was accepted on appeal that this was not a valid exercise of the option in accordance with a literal reading of the Deed’s express terms. That is, it was accepted that, according to the express terms of the Deed, exercise of the option required inter alia that a cheque for the deposit, being 10% of the option price (which was to be the midpoint of the two valuations as calculated by Mr Rogers) had to be provided. The primary judge accepted that this was correct (see Judgment [70] and [72](2)). The percentage was to be 10% because that is the percentage specified for the deposit in the 2018 edition of the standard form of “contract for the sale and purchase of land” published by the Law Society of New South Wales and The Real Estate Institute of New South Wales (see cl 12.2(a) of the Deed). That form of contract was provided with the purported notice of exercise of the option (see [12] above).

5. [14]

   By a summons filed in the Equity Division of the Supreme Court on 30 April 2021, Ms Hobhouse sought inter alia a declaration that Mr Macarthur-Onslow had not validly exercised the option and an injunction to prevent the second respondent from entering into or completing any contract or transfer of title to the Apartment pursuant to Mr Macarthur-Onslow’s purported exercise of the option (the “Equity proceedings”). Justice Henry, sitting as the duty judge in the Equity Division, granted the injunction on 30 April 2021. The summons was heard urgently before Justice Kunc on 3 June 2021 and his Honour delivered judgment on 11 June 2021. The present appeal is brought by Ms Hobhouse under s 101(1) of the Supreme Court Act 1970 (NSW), pursuant to a notice of appeal filed on 7 July 2021.

The Primary Judgment

1. [15]

   Having noted that no evidence had been tendered of any relevant surrounding circumstances, his Honour stated:

2. [16]

   After identifying those seven “textual and circumstantial considerations”, his Honour however said that he did not consider that “as a matter of construction, it is then open to the Court to construe away the plain words of cl 12.2(d)”, stating that “[t]he text must be given primacy” (Judgment [70]). In referring to “the plain words of cl 12.2(d)” (that is, its unambiguous words) his Honour was recognising that, according to the Deed’s express terms, the subject option was not validly exercised by Mr Macarthur-Onslow.

3. [17]

   His Honour nevertheless found that a term of the Deed which rendered Mr Macarthur-Onslow’s purported exercise of the option valid was to be implied, the implication being the insertion in cl 12.2(d) of the words “and if the price has been determined in accordance with this Deed” after the reference in that clause to service of a written notice (Judgment [71]). The effect of this implication was that if the midpoint of two valuations, and therefore the price, had not been determined by the end of the period for exercise of the option, the notice was not required to be accompanied by a cheque for the deposit (or two signed copies of the contract) (Judgment [71]). On this basis Mr Macarthur-Onslow’s purported exercise of the option was valid.

4. [18]

   In reaching this conclusion the primary judge found that the following well-known conditions for implication of a term, stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283; 52 ALJR 20, were satisfied:

   1. (1)

      The term must be reasonable and equitable;

   2. (2)

      The term must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

   3. (3)

      The term must be so obvious that “it goes without saying”;

   4. (4)

      The term must be capable of clear expression;

   5. (5)

      The term must not contradict any express term of the contract.

5. [19]

   His Honour stated that “on its plain meaning” cl 12.2(d) is “unworkable if the price for the Yarranabbe Road Apartment has not been determined at the time of exercise of an option in relation to it” and said the following at [72] in relation to the five BP Refinery conditions:

Consideration – implied term

1. [20]

   In considering whether a term should have been implied in the present case, the following observations of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346; [1982] HCA 24 should be borne in mind:

2. [21]

   The Deed in the present case is a “detailed and comprehensive” contract such as referred to by Mason J in these observations. It contains detailed provisions about a variety of matters, including the grant and exercise of options to purchase multiple different properties. The provisions relating to each property differ significantly and there is no warrant for departing from the language used to attempt to establish an equivalence or compatibility between them when differences are clearly identified. For example, the options granted in respect of the Homestead Lot in cl 3 are at a stated price ($40,000,000) and are exercisable by reference to fixed periods of time (60 days). In contrast, the Yarranabbe Apartment options are exercisable at a price to be determined by valuations and similar, but not identical, time periods for exercise are specified. At least in the respects relevant to this appeal, the provisions of the Deed are unambiguous, as the primary judge effectively held.

3. [22]

   I respectfully disagree with the primary judge’s conclusion that the BP Refinery tests for implying a term are satisfied. The provisions concerning exercise of the relevant option (cl 12.2(d)) were not unworkable such that it was necessary to imply a term to give them business efficacy. The option involved the grant of conditional rights to Mr Macarthur-Onslow which were well capable of exercise by him in the event that Mr Rogers obtained, as he was required to do, two valuations of the Apartment and calculated the midpoint of the valuations. It was by no means impossible for Mr Rogers to do this. He did not have to use any particular valuers and the valuations did not have to be of any particular character such as might take an extended time to prepare. The Sotherby’s valuation, which the parties implicitly accepted, complied with cl 8.1(d), was for example simply a three-page email referring to the valuer’s inspection of the Apartment and to three recent apartment sales of which details and photographs were provided. Moreover, if there was (as occurred) any delay in a valuer responding to a request for a valuation, it was open to Mr Rogers to approach another to ensure that he received it within the stipulated 60-day period.

4. [23]

   There were thus many circumstances in which the option would not be “unworkable”, that is, in which the optionee would be able to exercise it in accordance with its terms. In the particular circumstances that occurred here, exercise was not possible but that did not render the option “unworkable”. Mr Macarthur-Onslow might have considered the 60-day period an unreasonably short period in which to exercise the option but equally the limitation to a 60-day period might have been seen by someone in Ms Hobhouse’s position as a reasonable limitation on the option because it enhanced her prospects of obtaining the opportunity herself to exercise the option. There is no warrant for the Court attempting to determine whether the terms of the option were or were not reasonable. As stated by Mason J in Codelfa in [20] above, to justify the importation of an implied term it is ‘“not sufficient that it would be reasonable to imply the term. ... It must be clearly necessary” (see also Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 139; [1984] HCA 64).

5. [24]

   In these circumstances, the term that his Honour implied was not necessary to give business efficacy to the contract because the option was effective without the implication. For the option to be effective in a business sense it did not need to be capable of being exercised in all conceivable circumstances. That it was capable of being exercised in many foreseeable circumstances was sufficient. The primary judge was, with respect, in error in attaching significance to the fact that the option could not be exercised “in every circumstance” (Judgment at [72](3) quoted in [19] above).

6. [25]

   In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 241; [1986] HCA 14, the High Court found that the contract there under consideration was “capable of sensible operation in the absence of… implied terms” and that “the appellant’s submission amount[ed] to little more than an assertion that the terms are necessary to make the contract work in a manner that will avoid additional liability of the assured”. Likewise in the present case, the first respondent’s submissions amount to little more than an assertion that the implied term found by his Honour was necessary to make the contract work in a manner that enhanced Mr Macarthur-Onslow’s opportunity to exercise the option.

7. [26]

   Moreover, it cannot be said that the need to imply a term to remove the restrictions on exercise of the option would have been regarded by a reasonable bystander as so obvious that “it goes without saying” and that the particular term implied by the primary judge would have been thought to be the obvious way in which the perceived unreasonableness would be addressed. Instead, a reasonable bystander might for example have considered that a requirement of lodgement of a deposit at the time of exercise of the option should not be abrogated altogether in the circumstances as they occurred (which was the effect of his Honour’s implication) but should be replaced by a requirement to lodge a deposit differently calculated.

8. [27]

   Conditions (2) and (3) identified in BP Refinery were therefore not satisfied in the present case. As well, the implication was impermissible because it was inconsistent with the express terms of the contract (Condition 5).

9. [28]

   Examples of inconsistency of this type can be found in a number of cases. For example, in Sanders v Snell (1998) 196 CLR 329; [1998] HCA 64 it was held that to imply a term into an employment contract which expanded the circumstances in which the employer could make payment of salary to the employee in lieu of notice of an intention to terminate the employment “would fly in the face of the express provisions in the agreement” (at [16]). An implication was likewise rejected on this basis in Besier v Foster (1952) 94 CLR 526; [1952] HCA 14 where it was held that the proposed implication “disregards what the words say and attempts to introduce into them a change of actual meaning” (at 530). Again, in Ikin v The Danish Club "Dannebrog" Inc [2001] VSCA 123 an attempt at implication failed because its effect would have been to add into a written contract of employment an additional ground for dismissal beyond those stated in the contract (see [17]).

10. [29]

    Similarly, in the present case, the implication made by the primary judge had the effect, not of adding a term that could operate conformably with the express terms, but of directly contradicting them by changing the circumstances in which a deposit was required to be proffered on exercise of the option.

Relief against forfeiture

1. [30]

   In light of the primary judge’s finding that Mr Macarthur-Onslow validly exercised the relevant option (because it was appropriate to imply into the Deed a variation to the express terms of the option), his Honour did not address the first respondent’s alternative contention that, if the option was not validly exercised, Mr Macarthur-Onslow’s estate was entitled to relief from an asserted forfeiture of an interest constituted by his rights under the option. By his Notice of Cross-Appeal in this Court, the first respondent raises that argument again and seeks relief from the forfeiture.

2. [31]

   There are four principal issues that arise in this context:

   1. (1)

      Whether, prior to its exercise, the subject option conferred any proprietary rights on Mr Macarthur-Onslow;

   2. (2)

      If it did not, whether the Court’s jurisdiction to grant relief against forfeiture extends to rights merely contractual in nature;

   3. (3)

      Whether relief against forfeiture is available in respect of an ineffective exercise of an option; and

   4. (4)

      Whether relief should be granted in the circumstances of the present case.

3. [32]

   As in my view the answer to (4) is clearly in the negative, it is unnecessary to address issues (1), (2) and (3).

4. [33]

   In certain situations equity exercises jurisdiction to relieve against penalties and forfeitures, the distinction between these concepts being described in Legione v Hateley (1983) 152 CLR 406 at 445; [1983] HCA 11 (Mason and Deane JJ) as follows:

5. [34]

   In relation to forfeiture, the plurality in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [58] described the “special heads of fraud, accident, mistake or surprise” as identifying “in a broad sense” the circumstances that made it inequitable for the vendors in that case to rely upon their termination of the purchaser Tanwar’s contracts as an answer to Tanwar’s claim for specific performance. Their Honours indicated that those “special heads” do not necessarily delimit the extent of the equitable jurisdiction. Their Honours at [59] then cited the statement of Deane and Dawson JJ in Stern v McArthur (1988) 165 CLR 489 at 526; [1988] HCA 51, that the “circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or, more accurately, unconscientious – conduct”. Mason CJ however emphasised in Stern that “the jurisdiction to grant relief against forfeiture does not authorise a court to reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side’s situation more favourable” (at 503). The plurality in Tanwar referred to this statement with approval (at [58]) and the High Court made a statement to similar effect in Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367; [2003] HCA 58 at [24].

6. [35]

   As to the concept of “accident”, the plurality in Tanwar referred to relevant texts and continued:

7. [36]

   In Tanwar itself the purchaser was unable to complete contracts for the sale of land due to a delay in it obtaining finance. The High Court denied relief against forfeiture on the basis that “[t]hat there might be a failure by a third party to provide the finance was reasonably within the contemplation of Tanwar” (at [67]).

8. [37]

   In the present case, the first respondent did not assert that there had been any representation or other conduct by Ms Hobhouse which might have founded an estoppel, or that anyone had been mistaken in a relevant sense. Effectively all he was able to put was that, first, Ms Hobhouse knew that Mr Macarthur-Onslow wanted to obtain the Apartment by exercise of the option but she nevertheless relied in the Equity proceedings upon the strict terms of the Deed as to the manner in which the option had to be exercised and, secondly, that the fact that the second valuation was not obtained within the time required was an “accident” in the sense referred to in Tanwar (see [35] above).

9. [38]

   The first submission does not advance the first respondent’s position. The parties entered into a detailed contract, in the form of the Deed, which, at least so far as it arose for consideration on this appeal, is not obviously unreasonable in its provisions. Whilst unconscionability at the time of entry into a relevant contract need not be established, reliance on its terms, particularly where the contract is detailed and apparently carefully drafted, is not, without more, unconscionable according to the principles referred to in [34] above. As noted above the High Court indicated in Romanos at [24] that:

10. [39]

    Similar to the position in Romanos, it is significant in the present case that Ms Hobhouse did not cause or contribute to Mr Macarthur-Onslow’s inability to exercise the option (see Romanos at [25]).

11. [40]

    As to the second matter referred to in [37] above, the first respondent did not identify any evidence that rendered what occurred an “accident” in a relevant sense. There was for example no evidence that Mr Macarthur-Onslow took steps to urge or direct Mr Rogers to expedite his obtaining of the second valuation or to seek a valuation from another valuer. It was open to Mr Rogers to take these steps (whether encouraged or directed, or not) but there was no evidence as to why he did not do so. That there might be a delay in obtaining the valuations was eminently foreseeable and therefore, as with the delayed finance in Tanwar, reasonably within the contemplation of the parties (see at [67]).

12. [41]

    For these reasons, the first respondent did not establish that there was any “accident” in the sense described in Tanwar or any arguably unconscientious conduct on the part of Ms Hobhouse. This is therefore not a matter in which equity would relieve against Ms Hobhouse’s reliance on the terms of the Deed to assert that Mr Macarthur-Onslow did not validly exercise his option to purchase the Apartment.

Orders

1. [42]

   For the reasons given above, I propose the following orders:

   1. (1)

      Allow the appeal.

   2. (2)

      Dismiss the cross-appeal.

   3. (3)

      Set aside the orders made in the Equity Division on 11 June 2021 and in lieu thereof declare that the purported exercise by Mr Macarthur-Onslow on or about 22 April 2021 of the option referred to in cll 5.6 and 12.2 of the Deed of Settlement and Release of 22 February 2021 was ineffective.

   4. (4)

      Order the respondents to pay the appellant’s costs of the proceedings in this Court and in the Court below.

2. [43]

   WHITE JA: I agree with Macfarlan JA.