Mahoneys secures a victory for its clients in the Supreme Court

23 November 2020

Mahoneys acted for the successful applicants in Hilas & Anor v GGPG Developments (No 133) Pty Ltd & Anor [2020] QSC 313 – a dispute about an option deed between the land-owners, who were our clients, and a property developer.

The parties entered into a put and call option deed in 2018 in respect of a property in Park Ridge, Queensland: at [2]. The purchase price was determined by whether the put or call option was exercised, and if the call option was exercised, when it was exercised: [3]. There was a fixed price if the put option was exercised: [4]. The option deed was varied on five occasions: [9], [10]. The last variation to the option deed extended the call option period but did not factor the time extension in to the purchase price formula for the call option: [11].

On the last day of the call option period, the developer asserted the option deed was void for uncertainty and demanded repayment of all monies paid under it: [12]. The land-owners rejected that the option deed was void: [17], [20]. Following the expiry of the call option period, the land-owners exercised their put option: [15]. The developer further asserted that the litigation ought to proceed by claim rather than application: [19], [23], [25].

Was the option deed certain?

The uncertainty question was resolved by a proper construction of the option deed as varied. The deeds constitute a commercial contract between the parties. The principles as to the construction of such a contract were not in dispute (citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657, [35] per French CJ, Hayne, Crennan and Kiefel JJ): [26].

In addition to those general principles, the land-owners also relied on authorities specific to contractual uncertainty for the proposition that modern jurisprudence attempts to give effect to commercial transactions, and as a result, uncertainty has fallen into disfavour as a tool for striking down commercial bargains (citing Banque Brussells Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 523 per Rogers CJ Comm D): [28].

The court found, as submitted by the land-owners, that the purchase price increased on a daily basis to the maximum stated price during the call option period. This maximum purchase price was also the purchase price if the put option was exercised: [29]. The court further found (at [33]), as submitted by the land-owners, that a reasonable business person in the position of the parties at the time the fifth variation deed was entered into would have known and understood the following matters:

  1.  Before the fifth variation deed was entered into, the call option was incapable of being exercised. Clause 3.2 of the option deed required the developer to pay, prior to exercising the call option, an initial security deposit and a further security deposit. As to the further security deposit required by cl 3.2(b), the dates by which it had to be paid were varied by the second, third and fourth variation deeds so that the further security deposit became payable by 18 November 2019. By cl 2.1(b) of the fifth variation deed, the requirement was that the further security deposit be paid in three instalments on 28 February, 31 March and 30 April 2020. The developer was therefore incapable of exercising its call option until the parties entered into the fifth variation on 9 June 2020.
  2.  The only purchase price payable under the call option at the time of the fifth variation deed was the maximum.
  3.  The only option capable of being exercised when the fifth variation deed was entered into was the put option, with the maximum purchase price.
  4.  The fifth variation deed afforded the developer an opportunity to exercise the call option up until 4 September 2020, but also delayed the potential exercise of the put option (until 5 September 2020 at the earliest) by the land-owners.
  5.  As varied, the call option could only ever be exercised in a period where no discount to the maximum purchase price was available. Moreover, no variation was made to cl 3.4(c)(ii)B so as to afford the developer any further opportunity to secure any reduction in the maximum purchase price.
  6.  The developer, in the fifth variation deed, agreed to pay compensation the land-owners for the “inconvenience” caused by the extension. Unlike the security deposit, compensation was not credited as a payment towards the purchase price at settlement. Clause 2.1(d) of the variation deed referred to the amount as becoming “the property of the [land-owners] absolutely immediately upon receipt by the [land-owners] and is not refundable in any circumstances”. The payment accordingly had the effect that the land-owners were to be paid more than the purchase price payable upon the exercise of either option.

Was the Notice of Exercise of Option dated 10 September 2020 valid and effectual?

Validity of a contractual notice is determined objectively by how a reasonable recipient would have understood the notice, taking into account any notice requirements of contract (citing Mannai Investment Co Ltd v Eagle Star Life Assurance Co Limited [1997] AC 749 at 767-768 per Lord Steyn). In that case, Lord Steyn observed:

Even if notices under contractual rights contain errors, they may be valid if they are ‘sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate’. … The reasonable recipient should be left in no doubt what right is being exercised.

There was no suggestion that the terms of the notice of exercise of option was not “substantially similar” to those in schedule 1 to the option deed: [36].

By cl 5.1 of the option deed, the effect of exercising the put option was that immediately a sale contract would come into force and effect. The notice of exercise of option was accompanied by a copy of the sale contract. The sale contract was not required: [39]. However, the court found the fact that the covering letter enclosed both the Notice of Exercise of Option and the Sale Contract does not, in my view, affect the validity of the put option: [39].

That is because, on its face, the Notice of Exercise of Option was a document that was in terms substantially similar to those in Schedule 1 to the option deed (at [39]) and a reasonable recipient of the notice must have appreciated that the land owners were giving notice of an exercise of the put option in accordance with cl 4.3 of the Deed and in the form of Schedule 1 to the Deed (at [41]).

The developer’s contention that the litigation should been commenced by claim

The court did not accept the developer’s contention that the litigation should have been commenced by claim. A proper construction of a contract is appropriate to be dealt with summarily (i.e. by application) unless it is an exception case (citing Willmott v McLeay [2013] QCA 84 at [24], Holmes JA (as her Honour then was) with whom Fraser and White JJA agreed). This was not an exceptional case: [43].

Accordingly, the court declared that the option was validly exercised by the land-owners, and ordered the developer to pay the land-owners’ costs. Mahoneys acted for the land-owners.

by Mitchell Downes & Anders Mahoney