Reported Decision : (2004) NSW ConvR 56-087 New South Wales Supreme Court CITATION : Buildev Development v PIC Sales [2003] NSWSC 1245 HEARING DATE(S) : 12 December 2003 JUDGMENT DATE : 12 December 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Caveat not extended CATCHWORDS : CONTRACTS - option to purchase - contractual right to extend time for exercise of option to purchase - whether strict compliance with conditions for exercise of contractual power required - CONTRACTS - substantial performance - field of operation - CONVEYANCING - LAND UNDER THE TORRENS SYSTEM - caveats against dealings - option to purchase confers caveatable interest - EQUITY - relief against forfeiture - when available concerning loss of an option - what is a forfeiture Arcos Ltd v E A Ronaasen & Son [1933] AC 470 Bolton v Mahadeva [1972] 1 WLR 1009 Corio Guarantee Corporation Ltd v McCallum (1956) VLR 755 Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR(NSW) 122 Ex parte Graves (1905) 7 Gaz LR 318 H Dakin & Co Ltd v Lee [1916] 1 KB 566 Re Henderson's Caveat [1998] 1 QdR 632 Hoenig v Isaacs (1952) 2 All ER 176 Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140 CASES CITED : Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 Legione v Hateley (1983) 152 CLR 406 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 Melacare Industries of Australia Pty Ltd v Daley Investments Pty Ltd (1995) 6 BPR [97535] Re McKean's Caveat [1988] 1 QdR 524 Quek v Beggs (1990) 5 BPR 11,761 Sarge Pty Ltd v Cazihaven Homes Pty Ltd (1994) 34 NSWLR 658 Stern v McArthur (1988) 165 CLR 489 Tonitto v Bassal (1992) 28 NSWLR 564 Trustees Executors & Agency Co Ltd v Peters (1960) 102 CLR 537 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 Xcel Rural Properties Pty Ltd v South Creek Dairy Pty Ltd (2002) 10 BPR [97957] PARTIES : Buildev Development Pty Ltd - Plaintiff PIC Sales Pty Ltd - Defendant FILE NUMBER(S) : SC 6011/03 COUNSEL : A Lo Surdo - Plaintiff R D Wilson - Defendant SOLICITORS : Trisley Kilmurray - Plaintiff Stacks the Law Firm Forster - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J FRIDAY 12 DECEMBER 2003 – Revised 18 December 2003 6011/03 BUILDEV DEVELOPMENT PTY LTD v PIC SALES PTY LTD JUDGMENT – Ex Tempore (On application to extend caveat) 1 HIS HONOUR: This is an application to extend a caveat. The caveator was the Grantee of an option to acquire the land in question. 2 That option is one which was granted by a Deed entered on 14 April 2003. The Deed of Option made provision in Clause 3 for the option being exercised before 4pm on 22 October 2003. "(a) by delivery of written notice of exercise of option and a bank cheque for $102,000 by way of deposit payable under the contract. (b) the notice and cheque shall be delivered personally to the Grantor at [address] or to the office of Stacks – The Law Firm Forster Solicitors of [address]." 3 Clause 4 stated: "The Grantor … may extend the time for the exercise of this option until 4pm on 22 April 2004 by serving prior to 4pm on 22 October 2003, a written notice pursuant to this clause, in the manner specified by clause 3(b), accompanied by a bank cheque for the sum of Two Thousand Five Hundred Dollars ($2500.00) in favour of the Grantor (or in favour of Stacks – The Law Firm Forster Solicitors), being the consideration payable for the grant of the extension. Provided always that at or before the time of the Grantee exercising this power the Grantee will satisfy the Grantor that the need for the extension of time is [due] solely to delays caused by Greater Taree City Council in dealing with an application by the Grantee as outlined in condition 11 hereof." 4 Condition 11 was one whereby the Grantor consented to the Grantee lodging a development application with the Council for the development of a supermarket on the property. 5 The present dispute arises from a purported exercise of the right conferred under clause 4 of the Deed to extend the time for exercise of the option. On 14 October 2003 the solicitors for the Grantee sent to the solicitors for the Grantor an option extension notice. No challenge is made to the sufficiency of that notice, or to the time or manner of its delivery. The option extension notice was accompanied by a cheque for $2,500 in favour of the Grantor. However that was not a bank cheque, but rather a cheque drawn by the Grantee of the option on its own bank account. 6 The solicitors for the Grantor waited until the time for valid exercise of the right to obtain an extension of time for exercise of the option had passed. Then, on 23 October 2003, they replied to the solicitors for the Grantee, thanking them for their letter of the 14th, and saying: "Unfortunately the right to extend was not exercised in accordance with the Deed of Option and the Option itself has now lapsed. Your client's cheque is enclosed." 7 This led to the Grantee lodging a caveat against the title to the land, and to the Grantor promptly arranging for service of a lapsing notice. 8 The Grantor says that there are two deficiencies in the purported exercise of the right to extend the time for exercise of the option. The first, it says, is the failure to provide a bank cheque. The second is the failure of the Grantee to satisfy the Grantor, before the time of the Grantee exercising the power contained in clause 4, that the need for the extension of time was due solely to delays caused by the Council. 9 It is common ground between the parties that the approach that the Court should adopt in deciding whether to extend the caveat is to decide whether there is a serious question to be tried, and, if there is, to decide where the balance of convenience lies. 10 The Grantor submits that there is no serious question to be tried concerning whether the notice of extension of time was a valid one, when it was not accompanied by a bank cheque. There is evidence before me on this application that the Grantee's cheque, which accompanied the notice, would have been met on presentation at the Grantee's bank. In these circumstances, counsel for the Grantee, Mr Lo Surdo, invoked the doctrine of substantial performance, submitting that providing a personal cheque, which would have been met on presentation, amounted to a substantial performance of the circumstances in which clause 4 said that the time for exercise of the option could be extended. 11 In my view there is no serious question to be tried about whether that argument is correct. The doctrine of substantial performance, while it has several roles to play in the law of contract, has no role in this context. One of the roles which the doctrine of substantial performance plays is that it operates in the construction of certain contractual clauses which impose obligations on parties, so that the clause is not regarded as being broken by occasional small deficiencies. See, for example, Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 304. However, the scope for this sort of latitude in contractual performance is limited, for the purpose of deciding whether there has been a breach of an obligation. Thus, in Arcos Ltd v E A Ronaasen & Son [1933] AC 470 at 479, Lord Atkin said: "It was contended that in all commercial contracts the question was whether there was a "substantial" compliance with the contract: there always must be some margin: and it is for the tribunal of fact to determine whether the margin is exceeded or not. I cannot agree. If the written contract specifies conditions of weight, measurement and the like, those conditions must be complied with. A ton does not mean about a ton, or a yard about a yard. … If the seller wants a margin he must and in my experience does stipulate for it … No doubt there may be microscopic deviations which business men and therefore lawyers will ignore. … It will be found that most of the cases that admit any deviation from the contract are cases where there has been an excess or deficiency in quantity which the Court has considered negligible. But apart from this consideration the right view is that the conditions of the contract must be strictly performed." 12 Another role which the doctrine of substantial performance has is in deciding whether any breach of a contractual provision is so serious as to make performance of the contract substantially different from the point of view of the other contracting party to what had actually been agreed to, so as to justify that other contracting party in non performing his side of the contract, subject to allowances for the extent to which the first party is in breach. See, for instance, H Dakin & Co Ltd v Lee [1916] 1 KB 566; Hoenig v Isaacs (1952) 2 All ER 176; Corio Guarantee Corporation Ltd v McCallum (1956) VLR 755 at 760; Bolton v Mahadeva [1972] 1 WLR 1009 at 1012, 1015. A third, but related, situation where the doctrine of substantial performance has a role to play is that substantial performance by one party of an entire contract can be sufficient to enable that party to enforce the obligations of the other party, if the other party has taken the benefit of such performance as there has been, and thereby waived any condition precedent requiring entire performance. See, for instance, Hoenig v Isaacs. 13 The question at issue in the present case does not involve any of those situations. Clause 4 of the Deed of Option imposes an obligation on no one to serve a notice of extension. Rather, it confers a contractual power. It amounts to an agreement between Grantor and Grantee that, if certain conditions are fulfilled, a certain result will follow. In this way, it is, in my view, in the same legal position as a grant of option. It confers, in substance, an option on the Grantee to extend the time for exercise of the option to purchase. 14 It is well established that the conditions for exercise of an option must be precisely fulfilled – see Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR(NSW) 122; United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at 929, 945-946, 951, 961-962; Tonitto v Bassal (1992) 28 NSWLR 564 at 574-575. 15 The way this was explained in Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd was by saying, at 123, 124: "In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that all original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer." 16 It will be seen that that analysis is one which proceeds on the conceptual basis that an option is an irrevocable offer. However, even if the alternative view of an option, that it is a conditional contract, is applied, the same result arises. 17 Mr Lo Surdo sought to distinguish the present situation, concerning the extension of time for exercise of the option to purchase, from an exercise of the option itself, by referring me to Trustees Executors & Agency Co Ltd v Peters (1960) 102 CLR 537, at 554 per Menzies J, where his Honour pointed out that when there had been an effective extension of the time for exercise of an option, the contractual document which effected that extension did not itself grant a new option. That proposition is undoubtedly correct, with respect, but does not provide a ground for concluding that the provision in clause 4 of the Deed of Option is one which does not require the strictness of performance required for exercise of an option. 18 There were numerous other considerations which were relied upon by the plaintiff. The plaintiff submitted that there was a serious question to be tried about whether the proviso to clause 4 had been satisfied. The plaintiff gave evidence of having busied itself about obtaining the development application, from very soon after the time of grant of the option, and about having involved the real estate agent who acted for the Grantor in certain of that activity. There was evidence of the plaintiff's representative discussing with the defendant's representative, in early September 2003, the extension of the option. That evidence suggests that both men regarded it as a good thing that there were no problems contemplated with the option extension, and communicated that view to each other. There was an affidavit filed by Mr Ibbotson, a Director of the defendant, who deposed to various matters concerning his personal limited involvement in the advancing of the obtaining of the development approval, but he nowhere said (as he easily could have, if it were true) that he was not satisfied that a need for any extension of time was due to delays caused by Council. In these circumstances I would have held that there was a serious question to be tried about whether the proviso to clause 4 had been satisfied. 19 Another contention which the plaintiff raised was one of estoppel. On the basis of the conversation in early September, which I have just referred, the plaintiff gave evidence that it continued to expend money and to put in man-hours, to advance the project. The particular conversation which is relied upon is one where Mr Parker, of the plaintiff, spoke on the telephone with Mr Cameron, the real estate agent acting for the defendant and who had the carriage of the matter. Mr Cameron said, "Peter Ibbotson has just called to make sure you're aware of the option extension date to ensure all is in order and that we have no problems." Mr Parker said, "Yes, I am aware of the option extension date, it's 22 October and I will have all relevant documentation forwarded to his lawyers before the option expiry date. It is good to know that we have no problems with the option extension." Mr Cameron replied, "Yeah, that's good." 20 While a conversation of that kind might possibly give rise to a serious question to be tried about whether there was an estoppel in relation to whether the Grantor was satisfied that the need for the extension of time arose solely from delays caused by the Council, it proceeds on the basis that the extension of time for exercise of option will itself be exercised in accordance with its terms. It provides no basis for an estoppel whereby any departure from the strict terms of the exercise of the extension of time would be permitted. 21 An alternative basis on which the plaintiff puts its claim is that of relief against forfeiture. It is clear that an option to purchase confers an interest in land, and hence is a caveatable interest: Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75 per Gibbs J; Re Henderson's Caveat [1998] 1 QdR 632; Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140; Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; 10 BPR 18,615; Xcel Rural Properties Pty Ltd v South Creek Dairy Pty Ltd (2002) 10 BPR [97957]. It has also been held that in some circumstances relief against forfeiture can be granted in relation to an option. Melacare Industries of Australia Pty Ltd v Daley Investments Pty Ltd (1995) 6 BPR [97535] was such a case. The option involved in that case was an option to purchase land, granted by a lessor to a lessee. Under the terms of the option agreement it was an act of default, entitling the non-defaulting party to terminate the agreement, if either party failed to perform its obligations to the other under the option deed, or under the lease. There was a termination in reliance on that clause. Hodgson J held that there had indeed been a breach, of a clause he did not regard as very important, in the lease. His Honour held that, in principle, it was possible for relief against forfeiture to be granted in relation to options, but that, because options were not within one of the well established areas where relief against forfeiture was granted, such as relief against forfeiture of a lease, it would be necessary, in accordance with Stern v McArthur (1988) 165 CLR 489 at 526-7, 537-40, 500-3, 514 to show that there was unconscionability in the Grantor of the option standing on its strict legal rights. His Honour held that in the circumstances of the case before him no such unconscionability had been shown. 22 In the present case, no allegation of unconscionability is made, hence no serious question to be tried arises concerning any such unconscionability. However, there is a more fundamental problem with the availability of relief against forfeiture. That problem is that there simply has not been a forfeiture. A forfeiture arises when, by reason of a breach by one party (or perhaps a third party), the other party becomes entitled to bring to an end the property right of the first, and does so. In the present case the property right of the Grantee, in the form of the option, has simply expired by effluxion of time. The Grantee has breached no obligation which it had concerning the land, and the Grantor has done nothing which has in law brought about the ending of the Grantee's property right in the land. There is no scope for relief against forfeiture to operate. 23 In these circumstances, it is not necessary to decide whether, if the option was no longer on foot, but there was a case for obtaining relief against forfeiture of the rights arising from the option, that would suffice to create a caveatable interest. The question here is whether the existence of circumstances sufficient to enable a court in making an order for relief against forfeiture confers an interest in the land before the order has been actually made: Ex parte Graves (1905) 7 Gaz LR 318; Quek v Beggs (1990) 5 BPR 11,761 at 11,781; Sarge Pty Ltd v Cazihaven Homes Pty Ltd (1994) 34 NSWLR 658 at 664-665, notwithstanding that if it was established there was a serious question to be tried about the existence of a right of relief against forfeiture the Court might grant an interlocutory injunction to prevent disposal of the land in question: Legione v Hateley (1983) 152 CLR 406 at 446; Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140; Re McKean's Caveat [1988] 1 QdR 524 at 525 cf Meagher, "Sir Frederick Jordan's footnote" (1999) 15 JCL 1. 24 Mr Wilson, counsel for the Grantor, placed his submissions solely on the unavailability of a serious question to be tried. It is clear that, had there been a serious question to be tried, the balance of convenience would have favoured the extension of the caveat. However, for the reasons I have given, there is no serious question to be tried about whether sending the Grantee's personal cheque was a sufficient performance of the condition for extension of time. Hence I decline to make an order extending the caveat. 25 I order the plaintiff to pay the defendant's costs of today's hearing ********** Last Modified: 12/23/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.