BP7 Pty Ltd v Gavancorp Pty Ltd

These proceedings were commenced by Summons filed on 17 April 2020. The plaintiff, BP7 Pty Ltd, sought declaratory relief in relation to 14 contracts for the sale of land entered into with one or more of the defendants. In each case the relevant land consisted of a lot in either Strata Plan 3225 or Strata Plan 41002. They are strata schemes in respect of certain apartment blocks in Gerrale Street, Cronulla. The defendants are the owners of the various lots.

Each of the contracts arose as a result of the exercise, by one or more of the defendants, of put options that had been granted to them by the plaintiff.

The plaintiff purported to rescind each of the contracts on 11 March 2020 pursuant to s 66U of the Conveyancing Act 1919 (NSW) (“the Act”). Section 66U provides that in certain circumstances a purchaser under a contract for the sale of residential property has a right to rescind during the “cooling off period” that is provided for in ss 66S and 66T of the Act.

The plaintiff sought declarations to the effect that the contracts were so rescinded, and that as a consequence the defendants were in each case obliged to refund certain monies in the nature of call option fees that had been paid by the plaintiff, less 0.25% of the purchase price which is forfeited as provided for in s 66V of the Act. The defendants denied that the plaintiffs had validly exercised rights of rescission under s 66U and denied that the plaintiff was entitled to the claimed refunds. The defendants filed a Cross-Claim against the plaintiff and also against a firm of solicitors which had been retained by the defendants in relation to the transaction which gave rise to the contracts for sale. As against the plaintiff, the Cross-Claimants sought orders for specific performance of the contracts or alternatively orders that they were entitled to the call option fees paid by the plaintiff. As against the solicitors, the cross-claimants sought common law damages for alleged breaches of retainer or negligence, and damages under the Australian Consumer Law in respect of alleged misleading or deceptive conduct.

On 2 October 2020 the Court made orders pursuant to Uniform Civil Procedure Rules 2005 r 28.2 that two questions be determined separately and in advance of all other questions in the proceedings. The questions were framed as:

Shortly before the hearing, the matter settled as between the plaintiff and the defendants, so the hearing did not proceed.

On 9 November 2020 the plaintiff filed a Notice of Discontinuance. An Amended Cross-Claim, confined to the claims against the solicitors, was filed on 2 December 2020. A Defence to that pleading was filed by the solicitors on 8 December 2020. It is part of the cross-claimants’ case, denied by the solicitors, that the plaintiff validly rescinded each of the contracts for sale pursuant to s 66U of the Act, and in each case was entitled pursuant to s 66V of the Act to recover the call option fees paid less a forfeited amount of 0.25% of the purchase price.

On 11 December 2020 Ward CJ in Equity, being of the opinion that answering the separate questions remained of utility, listed the separate questions for hearing before me on 11 March 2021.

The cross-claimants contend that both of the questions should be answered in the affirmative. The solicitors contend that both of the questions should be answered in the negative.

On 4 September 2018 Deeds of Put and Call Option were entered into between the plaintiff and the relevant owner or owners of a lot in either Strata Plan 3225 or Strata Plan 41002. There are fourteen such deeds. They are relevantly in the same terms save as to the identity of the parties, the property concerned, and the amounts to be paid. In each case the owner or owners of the property entered into the deed as the Grantor, and the plaintiff entered into the deed as the Grantee. The principal provisions of one of the deeds are set out in the paragraphs that follow.

The recitals are in the following terms:

The call option is dealt with in cl 2 which relevantly provides:

The Call Option Fee is defined as an amount which equals 10% of the Purchase Price of the relevant property. The Contract is defined as the contract for sale of land formed on an exercise of either the Call Option or the Put Option in the form of the contract annexed to the deed as Annexure A. The annexed contract employs the 2018 Law Society/Real Estate Institute standard form, supplemented by a number of Additional Conditions. The annexed contract provided for a deposit of 10% of the purchase price. I note that the annexed contract contains the statement, required by s 66X of the Act, relating to the cooling-off period.

The Call Option Period commenced on the 43rd day after the date of the deed and ended at 5:00pm on the Call Option Expiry Date (which was defined as the date being 18 months from the date of the deed).

There is no dispute that on 4 September 2018 the plaintiff paid 50% of the Call Option Fee as required by each deed. Pursuant to the terms of the deed, those amounts, which total $1,050,000, were immediately released to the owners. The remaining 50% of the Call Option Fee was paid by the plaintiff in accordance with the deed. That amount of $1,050,000 was placed into the trust account of the agent for the owners.

There is no dispute that none of the call options were exercised within the Call Option Period.

The put option is dealt with in cl 3 of the deeds which relevantly provides:

The Put Option Fee is defined as $10.00. The Put Option Period is defined as the period beginning on the next Business Day after the Call Option Expiry Date and ending at 5:00pm on the Put Option Expiry Date. The Put Option Expiry Date is defined as the date being 10 Business Days after the Call Option Expiry Date.

There is no dispute that on 5 March 2020 each of the put options was exercised, and that this occurred within the Put Option Period. By cl 3.6 of each deed, a contract for sale was thus deemed to have been entered into between the Grantor (as vendor) and the Grantee (as purchaser) on the terms set out in the contract annexed to the deed. It is not in dispute that no s 66W certificate was provided by the purchaser at or before the time the contract was made. Accordingly, s 66T(a) did not operate so as to negate the cooling-off period.

In these circumstances, cl 4.1 operated. It is in the following terms:

Clause 4.2 provides:

On 11 March 2020 the plaintiff sent Notices of Rescission to the owners in respect of each of the contracts in the following terms:

On 16 March 2020 the plaintiff demanded, pursuant to clause 19.2.1 of the contracts, and s 66V(5) of the Act, that the Call Option Fees it had paid be refunded to it, less 0.25% of the purchase price of each contract for sale. In circumstances where the monies were not refunded as demanded, the plaintiff commenced these proceedings on 17 April 2020.

The issues raised on the separate questions concern the meaning and operation of various provisions found in Divisions 8 and 9 of Part 4 of the Act. These divisions were inserted into Part 4 of the Act (in substitution for the existing Division 8) by the Conveyancing (Sale of Land) Amendment Act 1990 (NSW). It is of course necessary to have regard to all of Divisions 8 and 9, and indeed to the statute as a whole, but the following provisions in particular should be noted.

Division 8 (ss 66P-66Y) is headed “Sale of residential property”. The meaning of “residential property” is defined in s 66Q. The property the subject of the deeds and contracts for sale in this case is residential property within the meaning of s 66Q.

A cooling-off period in relation to contracts for the sale of residential property is provided for in s 66S which is in the following terms:

Section 66T, to which s 66S is subject, provides:

Section 66U relevantly provides:

The consequences of a rescission under s 66U are set out in s 66V. This section is of particular relevance to the second of the separate questions. Section 66V provides:

Section 66T(d) is of central importance to the first of the separate questions. The solicitors contend that the plaintiff did not have any right to rescind the contracts under s 66U because the contracts were made “in consequence of the exercise of an option to purchase” within the meaning of s 66T(d). The cross-claimants contend that the contracts were not of that character because they were not made in consequence of the exercise of an option to purchase; they were made in consequence of the exercise of a put option which should not be regarded as an option to purchase.

It is accepted by both sides that the notion of an option to purchase within s 66T(d) is informed by a consideration of Division 9 of Part 4 of the Act.

Division 9 (ss 66Z to 66ZK) is headed “Options for purchase of residential property”. The expression “option to purchase” appears many times throughout the Division. A similar expression, “option granted for the purchase” also appears, notably in s 66ZG (which is itself referred to in s 66T(d)). Neither expression is defined in the definitions section (s 66Z).

Division 9 provides for its own cooling-off period in s 66ZB, which is in the following terms:

Section 66ZC, to which s 66ZB is subject, provides:

Section 66ZD relevantly provides:

The consequences of a rescission under s 66ZD are set out in s 66ZE which is in the following terms:

Finally, s 66ZG provides:

Reference should also be made to the definitions of “purchaser” and “vendor” found in s 66Z. For Division 9, “purchaser” is defined to include a prospective purchaser and also includes a grantee or prospective grantee of an option; “vendor” is defined to include a prospective vendor and also includes a grantor or prospective grantor of an option.

This question depends upon whether the plaintiff had the benefit of a cooling-off period in respect of the contracts under s 66T of the Act, so that it had rights of rescission under s 66U. There being no doubt that the contracts are contracts for the sale of residential property, there will have been a cooling-off period unless one of the exceptions set out in s 66T applied. The only exception that might apply in the present case is s 66T(d) which operates if the contract is made in consequence of the exercise of an option to purchase the property, other than an option that is void under s 66ZG.

The cross-claimants submitted that the contracts were made in consequence of the exercise of a put option, and that a put option cannot be described as an option to purchase. Rather, a put option is an option to sell, or perhaps an option to require someone else to purchase. It was submitted that the expression “option to purchase”, as found in s 66T(d) and also throughout Division 9, should be given its ordinary and natural meaning; that is to say, an option (in the nature of a call option) granted to a party which, if exercised, entitles the party to purchase property. This construction was said to be consistent with the language of the relevant provisions of Division 8 and Division 9 of Part 4 of the Act, and also the legislative purposes as identified in relevant extrinsic materials. It was submitted that it was not open to the Court to uphold the alternate construction advanced by the solicitors as it involves a departure from the ordinary and natural meaning of the legislative language, and it is not plain that parliament intended such a meaning (see Esso Australia Pty Ltd v Australian Workers’ Union (2017) 263 CLR 551; [2017] HCA 54 at [52]). The cross-claimants thus submitted that Question 1 should be answered “Yes”.

The solicitors posed the issue as whether the words “option to purchase” in s 66T(d) include an option to require the purchase of land (i.e. a put option) or are instead confined to an option to call for the purchase of land (i.e. a call option). The solicitors submitted that the broader interpretation was reasonably open because:

The solicitors submitted that the legislation had to be read in light of the mischief it was designed to overcome and its objects (see CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [78]; Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193; [2005] HCA 58 at [124]; see also Interpretation Act 1987 (NSW), s 33). It was submitted, by reference to the Second Reading Speech, that the purpose of Division 9 was to confer cooling-off rights on a prospective purchaser of residential land pursuant to an option. It was then submitted that because a prospective purchaser under a contract made pursuant to an option already had cooling-off rights under Division 9 in respect of the option, s 66T(d) provided that there would be no further cooling-off period under Division 8 in respect of any contract for sale that arises as a result of the exercise of the option.

The solicitors pointed to what were said to be anomalous results if “option to purchase” within Division 9 and s 66T(d) was read as restricted to call options. For example, a prospective purchaser under a call option and a put option would have cooling-off rights at different times, and is potentially liable to pay “the cooling-off fee” (of 0.25% of the purchase price) twice – once if cooling-off rights are exercised in respect of the call option and again if cooling-off rights are exercised in respect of the contract that arises on exercise of the put option. The solicitors further submitted that it would be inimical to the purpose for which Division 9 was enacted if the additional protections for prospective purchasers contained in the Division did not apply to put options.

In summary, the solicitors submitted that as the expression “option to purchase” within s 66T(d) and Division 9 includes the put options granted by the plaintiff, the plaintiff had cooling-off rights under Division 9 in respect of the put options (which it did not exercise), but had no cooling-off rights under Division 8 in respect of the contracts that came into existence upon the exercise of the put options. Accordingly, the purported rescissions of the contracts by the plaintiff were invalid, and Question 1 should be answered “No”.

In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27; [2009] HCA 41 it was stated in the joint judgment at [47]:

Divisions 8 and 9 were introduced into Part 4 of the Act (in largely the form they are in today) in 1990. A reading of the provisions reveals an intention to introduce cooling-off periods, subject to specified exceptions, in two areas – namely, contracts for the sale of residential property (Division 8) and options to purchase residential property (Division 9). One of the specified exceptions for Division 8 is a contract made in consequence of the exercise of an option to purchase the property (other than an option that is void under s 66ZG). So, in the case of an option to purchase, there is generally a cooling-off period which gives the purchaser under the option the right to rescind the option, but no cooling-off period in respect of a contract made in consequence of the exercise of the option.

As already noted, the expression “option to purchase” is not defined for the purposes of Division 9. Neither is the similar expression “option granted for the purchase”, found in s 66ZG. It can be presumed that parliament did not think it necessary to define the expressions, being content to express its intention through the ordinary meaning of the words themselves, read in their context as part of the Act as a whole.

In my view, the ordinary and natural meaning of the expression “option to purchase” is an option able to be taken (by the holder of the option) to purchase certain property. The expression is apt to describe the exercise of a choice to do something, namely, purchase property. A call option, as generally understood, is an option of that character. A holder or grantee of a call option is able to exercise the option so as to purchase the property. On the other hand, a put option, as generally understood, is not an option of that character. A holder or grantee of a put option is able to exercise the option so as to sell the property to the grantor or, put another way, require the grantor to purchase the property. It is not the exercise of a choice to purchase property.

The inclusive definitions of “purchaser” and “vendor” found in s 66Z seem to me to be consistent with this interpretation. A purchaser under such an option to purchase (see s 66ZD) can be readily described as a prospective purchaser and also a grantee of an option. A vendor under such an option to purchase (see s 66ZA) can be readily described as a prospective vendor and also a grantor of an option.

These definitions would be less coherent if option to purchase within Division 9 extended to put options. Whilst the purchaser in respect of a put option can be regarded as a prospective purchaser, it is the grantor of the option not the grantee. Similarly, whilst the vendor in respect of a put option can be regarded as a prospective vendor, it is the grantee of the option not the grantor.

The relevant Second Reading Speech, given to the Legislative Assembly on 21 November 1989 by the Honourable Mr Causley, includes the following:

The speech tends to suggest an intention to confer cooling-off rights upon grantees of options. As cooling-off rights are given to the purchaser under an option to purchase, and as a purchaser under a call option is also the grantee of the option, this suggests that the options intended to be the subject of the legislation are in the nature of call options where the grantee can choose to purchase the relevant property.

As I have said, the purchaser in respect of a put option can be regarded as a “prospective purchaser” and can thus fall within the notion of “purchaser” under Division 9. However, it remains the case that the cooling-off rights under Division 9 are conferred upon purchasers under an “option to purchase”. Again, I do not think that a put option falls within the ordinary and natural meaning of an option to purchase. Had it been the intention of parliament to include put options within Division 9, it could be expected that language suitable for that purpose would have been employed rather than the expression “option to purchase”. The construction favoured by the solicitors seems to me to put undue strain upon the chosen language, and is tantamount to reading words in. The solicitors themselves suggest that the expression can be read as “option to compel a purchase”, “option leading to a purchase” or “option pertaining to a purchase”. To my mind, “to” in “option to purchase” is concerned with the nature of the choice given by the option; that is to say, what can be chosen. An option to purchase thus gives the holder or grantee a choice to purchase.

I have considered the matters the solicitors say amount to anomalies if the cross-claimants’ interpretation of the legislation is upheld. I accept that if Division 9 of the Act is held to be confined to options in the nature of call options, and where (as in this case) a call option is granted in conjunction with a put option, the potential exists for consequences of the types described in the submissions. However, I do not regard these consequences as absurd or plainly unintended. They are really the product of an apparent legislative choice (reflected in the Second Reading Speech) to confine the central subject matter of Division 9 to options in the nature of call options. As submitted by the cross-claimants, it is not the function of the Court to seek to overcome what might be thought to be unintended consequences of legislation by construing the legislation as if it had a meaning that parliament did not intend it to have (see Esso Australia Pty Ltd v Australian Workers’ Union (supra) at [52]; see also Certain Lloyd’s Underwriters v Cross (supra) at [26]). I would add, however, that insofar as purchasers under put options are concerned, they will obtain the benefit of the protections contained within Division 8 (including as to a cooling-off period) in relation to any contract for sale that arises from the exercise of the put option. Of course, the cooling-off period is excluded in some circumstances (as is the case with the cognate protections within Division 9), including if the purchaser gives a certificate that complies with s 66W. No s 66W certificates were provided in the present case.

For the above reasons, I have concluded that the expression “option to purchase” as found within Division 9 and s 66T(d) should be construed to mean an option in the nature of a call option, which gives the holder or grantee the right to purchase the relevant property. I have reached the same conclusion in respect of the expression “option granted for the purchase” found within s 66ZG. In my view, that expression does not bear a different or wider meaning.

Finally, I note that these conclusions are consistent with the view of s 66ZG expressed by Barrett J (as his Honour then was) in Evolution Living Property Management Pty Ltd v CSP Australia Pty Ltd [2010] NSWSC 65 at [20], but inconsistent with the view expressed by Ward CJ in Eq. in Dacco Pty Ltd v CV Crows Nest Fund Pty Ltd [2020] NSWSC 1550 at [78] concerning cl 13 of the Conveyancing (Sale of Land) Regulation 2017. The views of those learned judges are naturally to be afforded great weight and respect. However, neither case involved a contested hearing with a contradictor on the relevant point. The parties drew my attention to the decisions, and pointed out that they involved circumstances different from those present here. Neither party suggested that the decisions provided much assistance on the questions now before the Court, and neither suggested that I was bound, even as a matter of comity, to follow either decision.

In conclusion, it is my opinion that a cooling-off period applied in relation to the contracts for sale that arose upon the exercise of the put options, and was not excluded by the operation of s 66T(d). It follows that the plaintiff, as the purchaser under such contracts, was entitled to rescind the contracts (as it purported to do) within the cooling-off period pursuant to s 66U. Accordingly, Question 1 should be answered “Yes”.

The solicitors did not accept that if Question 1 was answered in the affirmative then Question 2 should also be answered affirmatively. The solicitors referred to s 66V which provides that upon a rescission in accordance with s 66U the purchaser forfeits 0.25% of the purchase price of the property. That amount may be recovered from any deposit paid under the contract, and any balance of the deposit remaining after deduction of any amount forfeited is payable to the purchaser (see s 66V(3) and (5)). However, the solicitors referred to cl 4.2 of the deeds and submitted that the proper characterisation of the Call Option Fee is not a deposit but rather a non-refundable fee.

I do not think that is correct. Clause 2.4(a) of the deeds provides that the Call Option Fee is not refundable except in certain defined events which are not relevant here. However, cl 2.4(b) goes on to qualify cl 2.4(a) by stating that if either the Call Option or the Put Option is exercised, then the Call Option Fee will be credited as the Deposit under the relevant contract for sale that arises under either cl 2.7 or cl 3.6. This is reinforced by cl 4.1(d). Clause 4.2, when read in this context, should be construed so that it operates only if neither option is exercised.

It seems to me that in circumstances where the Put Option is exercised, the Call Option Fee is credited as the Deposit under the contract pursuant to cl 2.4(b). The Call Option Fee should thus be regarded as an amount paid by the purchaser “in relation to the contract or on account of the purchase price” of the property within the meaning of s 66V(10). On that basis, the amount of the Call Option Fee falls within the notion of the deposit for the purposes of s 66V. It follows that upon the rescission by the plaintiff of each of the contracts, the plaintiff forfeited an amount equal to 0.25% of the purchase price. The vendors were entitled under s 66V(3) to recover that amount from the Call Option Fee, which is treated as the deposit paid under the contract. However, the remaining balance of the Call Option Fee became payable to the plaintiff pursuant to s 66V(5). Further, to the extent that it is not inconsistent with s 66V, cl 19.2.1 of each contract would allow the plaintiff to recover the deposit following the rescission of the contract by the plaintiff (see s 66Y(4) of the Act).

For these reasons, Question 2 should also be answered “Yes”.

The Court will order that each of the separate questions be answered “Yes”. The Court will further order that the solicitors pay the cross-claimants’ costs of the hearing of the separate questions.