Supreme Court New South Wales Medium Neutral Citation: Leafs Gully Farm Pty Limited v Mitchell [2015] NSWSC 1460 Hearing dates: 4, 5, 6 and 23 March and 29 April 2015 Date of orders: 07 October 2015 Decision date: 07 October 2015 Jurisdiction: Equity Before: Lindsay J Decision: An order for specific performance available to enforce a contract made by exercise of an option to purchase land exercised, in accordance with an option agreement, by a nominee of the grantee of the option. Catchwords: CONVEYANCING – Breach of contract for sale and remedies – Purchaser's remedies – Specific performance – Option deed – Construction of option – Exercise of option to purchase land by a nominee of the grantee of the option Legislation Cited: Uniform Civil Procedure Rules 2005 NSW Cases Cited: Ashton v Pratt [2015] NSWCA 12 at [49] Birmingham, Dudley and District Banking Company (1888) 38 ChD 295 at 312-313 Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256 Clark v Lonergan (1960) 78 WN (NSW) 367 at 370 Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Limited (2000) 201 CLR 520 at 533[22] and 537[42] Concrete Pty Limited v Parramatta Design & Developments Pty Limited (2006) 229 CLR 577 at 606[99]-[100], Cf, 585 [19] n 20 Coulls v Bagot's Executor & Trustee Co Limited (1967) 119 CLR 460 at 478-479, 486 and 493 Dunlop Pneumatic Tyre Co v Selfridge & Co Limited [1915] AC 847 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106[24]-[25] Karaguleski v Vasil Bros & Co Pty Limited [1981] 1 NSWLR 267 at 269G-270C Sidney Eastman Pty Limited v Southern (1962) 80 WN (NSW) 548 at 550-551 St Hilliers (Developments) Pty Limited v Radmanovich [2002] NSWSC 524; (2003) NSW Conv R 56-030 at [9]-[10] Summers v Cocks (1927) 40 CLR 321 at 331 Trego v Hunt [1896] AC 7 at 25 Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 at 121 and 148-149 Tweddle v Atkinson (1861) 1 B&S 393; 121 ER 762 Westminster Estates Pty Limited v Calleja [1970] 2 NSWR 526 at 531 White City Tennis Club Limited v John Alexander's Clubs Pty Limited [2008] NSWSC 1225 at [127], on appeal (2010) 241 CLR 1 Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 59 CLR 43 at 67 Category: Principal judgment Parties: Leafs Gully Farm Pty Limited ACN 164 409 143 (Plaintiff) Richard Gordon Mitchell (First Defendant) AGL Power Generation Pty Limited ACN 086 586 192 (Second Defendant) Representation: Counsel: RG McHugh SC and J Hutton (Plaintiff) BA Coles QC and PT Russell (First Defendant) AP Lo Surdo SC and DR Meltz (Second Defendant) Solicitor: Gadens Lawyers (Plaintiff) Ashurst Australia Lawyers (First Defendant) Herbert Smith Freehills (Second Defendant) File Number(s): 2014/00010856 Judgment INTRODUCTION Commercial Context 1. These proceedings arise out of the abandonment by the Australian Gas Light Company ("AGL"), in about April 2013, of plans (in contemplation in and from about 2005) to develop a power station on land in the Campbelltown district of NSW (comprising Lots 101-105 in Deposited Plan 716209) known as "Leafs Gully Farm" owned by the first defendant and members of his family. 2. In 2005 the first defendant was, as he remains, the registered proprietor of Lots 101, 102 and 103. Lots 104 and 105 were owned by his two daughters and their respective partners. 3. In 2005 all five registered proprietors granted AGL an option to purchase all five Lots. 4. In 2009, with a variation of the option documentation to facilitate it, and to accommodate the convenience of the first defendant's family, the second defendant (a member of the AGL Group of companies) purchased Lots 104 and 105. It also granted the first defendant leases (registered as dealing numbers AF103955 and AF103938) over those Lots (at a nominal rent) until 5 November 2015, pending continued planning for the proposed power station. 5. By a series of supplementary agreements, AGL's option over Lots 101 - 103 was extended until 25 October 2013 and the second defendant was, for the administrative convenience of AGL, substituted as grantee of the option. 6. When, in 2013, AGL's plans for a power station were abandoned the AGL Group was anxious, if possible no later than 30 June 2013, to sell Lots 104 and 105 as surplus to its requirements: recognising that the marketability of those Lots was enhanced by the option it held for the purchase of Lots 101 – 103, but burdened by leases in favour of the first defendant. 7. The first defendant, as grantor of the option, was anxious to maximise his return on Lots 101-103 by encouraging the second defendant to release any rights it might have over those Lots and by interposing himself between the second defendant and any prospective purchaser of Lots 104-105 so as to facilitate, to his advantage, a sale to such a purchaser of all five Lots. 8. The Mir Group of companies (of which the plaintiff became a member on its incorporation on 21 June 2013) having expressed interest in acquiring all five Lots, commercial negotiations were undertaken, on the one hand, between AGL and the Mir Group and, on the other hand, between the Mir Group and the first defendant. 9. Those negotiations were at arm's length, with each negotiating party free to consult self-interest. Negotiations were conducted on a common assumption that no agreement, tri-partite or otherwise, would bind them, or any of them, unless and until there was an exchange of contracts to which each of them was a party. 10. In these commercial negotiations the first defendant appears to have made six critical miscalculations: 1. first, based perhaps on a misreading of the option documentation to which he and the second defendant were parties, he assumed that the second defendant could not enter into any arrangement with the Mir Group, vis-á-vis Lots 101-103, without his prior written consent. 2. secondly, he did not appreciate, or appreciate the significance of the fact, that the option he had granted to the second defendant was a grant to the second defendant "or its nominee", exercisable by the second defendant or a nominee of the second defendant, so that whoever exercised the option became the purchaser of the land, without the second defendant's right of nomination being qualified by a requirement that the nominee be an entity related to the second defendant. 3. thirdly, he assumed that the second defendant would voluntarily subordinate its interests to his by releasing in favour of him any rights it had over Lots 101-103 by virtue of the option. 4. fourthly, he assumed that the Mir Group, as a prospective purchaser of Lots 101-105 would subordinate its interests to his by a preparedness to pay him a purchase price higher than that he could insist upon in the event that the second defendant were to decide, after all, to exercise the option itself. 5. fifthly, he assumed that he could secure from the Mir Group a higher purchase price than that payable by the second defendant by withholding from the Mir Group full disclosure of his contractual obligation, vis-á-vis the second defendant, to bring into account option fees that had been paid by or on the account of the second defendant. 6. sixthly, he failed to appreciate that a common understanding that no enforceable agreements would arise out of the parties' negotiations absent a formal exchange of contracts, or a similar process, effected through lawyers operated for the benefit of all three parties, not merely himself. 1. The defendants shared a common, commercial interest in trying to effect a sale of "Leafs Gully Farm"; but that common interest was limited to trying to effect a sale. It did not extend to price or collateral terms of a sale. The defendants owed no fiduciary obligations to one another. Nobody has suggested the existence of any fiduciary obligations in these proceedings. The defendants' relationship was governed by formal documentation (the option documentation and leases) that set the metes and bounds of their respective rights and obligations. 2. The second defendant was part of a large corporate structure regulated by decision-making processes not lightly to be disregarded in the conduct of the business to be done in dealing with Leafs Gully Farm. 3. Although the first defendant endeavoured, in these proceedings, to construct a case based upon dealings extrinsic to the option documentation, it is in that documentation that the parties' respective rights and obligations must ultimately be grounded. I do not accept the first defendant's contention that events extrinsic to the documentation operated to deprive the documentation of contractual effect according to its terms. Competing Contentions 1. On its primary case the plaintiff seeks: 1. a declaration that there is a binding and enforceable contract between it, as purchaser, and the first defendant, as vendor, of Lots 101, 102 and 103 for the sum of $11.85 million; and 2. an order that the first defendant specifically perform that contract. 1. The contract is alleged to have come into existence on 15 October 2013 by virtue of a purported exercise by the plaintiff, as nominee of the second defendant, of an option to purchase the land granted by the first defendant ( in effect) to the second defendant on 25 October 2005. 2. As between itself and the second defendant, the plaintiff acquired a contractual right to be the second defendant's nominee, vis-á-vis Lots 101-103, when, on 28 June 2013, it contracted with the second defendant to purchase Lots 104-105 from the second defendant, subject to the leases registered on the title in favour of the first defendant. It purchased Lots 104-105 together with a right to be nominated as Purchaser of Lots 101-103 under the option documentation. 3. The first defendant denies the effectiveness of the plaintiff's alleged exercise of the option. That denial is accompanied by a cross-claim against the plaintiff in which the first defendant claims relief designed to establish that: 1. the option was not subsisting at the time the plaintiff purported to exercise it as the second defendant's nominee (on 15 October 2013) because, by 28 June 2013, arising out of a letter addressed to him by AGL Energy Limited (another member of the AGL Group) on 27 May 2013, the second defendant had released the option, or (with the plaintiff as its privy) was estopped from asserting that it had not granted a release, in his favour; 2. upon the proper construction of the option documentation, the second defendant never held a right to exercise the option by a nominee unrelated to it; and 3. if there ever was a contract between the plaintiff and the first defendant: 1. the first defendant was entitled to relief under sections 236-237 of the Australian Consumer Law relieving him of any obligation under that contract because of misleading and deceptive representations made to him (in contravention of section 18 of the Australian Consumer Law) by a representative of the plaintiff at a meeting that took place on 6 June 2013; or 2. the contract has been validly terminated by the first defendant, for breach of an essential term as to the amount of deposit payable upon entry into the contract; and 3. the deposit of $600,000 in fact paid by the plaintiff (said by the first defendant to have been an underpayment by $150,000) has been forfeited by the plaintiff to him. 1. By one route or another, the first defendant thus contends that he is entitled to remain registered proprietor of Lots 101-103 unencumbered by any claim made by reference to the AGL option. 2. As a response to the first defendant's case, the plaintiff advances a secondary, alternative case against the second defendant, claiming damages on an allegedly implied warranty on the part of the second defendant (in the contract made between the plaintiff and the second defendant on 28 June 2013) that the second defendant was capable of procuring, and was presently entitled to procure, the transfer of Lots 101-103 to the plaintiff by virtue of the option. 3. By an order made under rule 28.2 of the Uniform Civil Procedure Rules 2005 NSW on 21 October 2014, the quantification of any entitlement the plaintiff might have against the second defendant for damages is to be heard separately, and after, the determination of other questions in the proceedings. THE OPTION DOCUMENTATION The Option Deed 1. On 25 October 2005 the first defendant, his two daughters and their respective partners (as grantors) entered into a Deed of Option with AGL (as grantee) providing for AGL to have an option to purchase Lots 101-105. 2. Recital F of the preamble to the Option Deed recorded that the grantors had agreed to grant an option "to the Grantee or its nominee". 3. The expression "Grantee" was defined to mean "the Grantee, its successors and assigns": clause 1.1. 4. Clause 2 of the Deed formally granted the option "to the Grantee or its nominee". 5. Clause 3.1 provided for the option to be exercised "by the Grantee or its nominee", specifically allowing for a "Notice of Exercise of Option" to be "executed by the Grantee or its nominee" and for a deposit ("less the Option Fee") to be paid. 6. Clause 3.3 specifically provided that "[if] the Purchaser Is the nominee of the Grantee then the Notice of Exercise of Option must include [a prescribed form of confirmation of the nominee's status as nominee] duly completed and executed by the Grantee and the Purchaser" 7. The expression "Purchaser" was defined by clause 1.1 to mean "the person who exercises the Option". 8. Although the Option Deed provided for the grant of an option over Lots 101-105 on common terms, it also distinguished between the respective Lots owned by the first defendant (Lots 101-103) and his family (Lots 104-105). This may be seen, for example, in the definitions (in clause 1.1, read with schedule A to the Deed) of the expressions "Option Fee" and "Purchase Price". The option fee payable to the first defendant for his Lots was $150,000. The Purchase Price payable to him for those Lots was $15 million. 9. Clause 4 provided that if the option was exercised, that option fee was required to be credited as part payment of a deposit (representing 5% of the Purchase Price) payable upon exercise of the option, and as part payment of "the purchase price payable by the Purchaser" under the Contract made by virtue of the exercise of the option. 10. Clause 5.1 provided that a contract for the purchase and sale of the land was "made" on and by virtue of exercise of the option. 11. Treating Lots 101-105 generically, clause 1.1 defined the reference to a "Contract" (in Clause 4) to mean a contract for sale of the land to the Purchaser on the terms of a Pro Forma Contract annexed to the Option Deed. 12. Clause 1.1 also defined the term "Option" by reference to the Pro Forma Contract(s) annexed to the Deed: "'Option' means the option granted by the Grantor to the Grantee or its nominee pursuant to this deed to purchase the Property from the Grantor for the Purchase Price on the terms set out in the Pro Forma Contracts". 13. Clause 12 imposed on the grantors an obligation not to disclose the terms and conditions of the Option Deed, or any information relating to it, to third parties without the grantee's written consent. No reciprocal obligation of confidence was imposed on the grantee. Variation and Novation Deeds 1. The Option Deed was the subject of a series of variations and novations. 2. A "Novation Deed" was entered on 20 October 2006. A "Deed of Variation" was entered on 5 August 2008. A "Deed of Second Variation" was entered on 29 September 2009. A "Second Novation Deed" was entered on 17 June 2010. 3. This documentation provided, inter alia, for the following evolutionary developments. First, by the two novation deeds, AGL was replaced by AGL Power Generation (NSW) Pty Limited which, in its turn, was replaced by the second defendant. Secondly, at the request of the grantors of the original option, AGL Power Generation (NSW) Pty Limited exercised the option to purchase Lots 104 and 105, nominating the second defendant as the purchaser of those Lots. Thirdly, the option period for the purchase of Lots 101-103 was extended, subject to payment of additional option fees, in stages, potentially, to 25 October 2014. Fourthly, provision was made for some, but not all, of the additional option fees to be credited towards the Purchase Price payable by the Purchaser in the event of the option being exercised. 4. As it happened, in 2012 the option period was extended to 25 October 2013. That is where it was left, although the second defendant had an entitlement (contingent upon payment of an additional option fee of $500,000 to the first defendant by 25 October 2013) to extend the period to 25 October 2014. 5. One of the commercial factors in the balance for the second defendant in mid-2013 was whether to pay that additional option fee to extend the option period for another year or to allow the option to lapse on 25 October 2013. A complicating factor was that, in 2009, it had paid a total of $1.6 million (in addition to option fees totalling $200,000 earlier paid) to acquire Lots 104-105 then, plans for a power station having been abandoned, surplus to requirements. It wanted to offload those Lots at a price ($1.8 million) calculated to cover its outlays. Its best chance of doing so was if they could be sold as a package with Lots 101-103. That made subsistence of the option commercially valuable to it. 6. The total option fees paid by the AGL companies to the first defendant amounted to $5,450,000. Of that amount, pursuant to clause 4 of the original Option Deed and clause 6 of the Deed of Second Variation a total of $3,150,000 was to be credited towards the Purchase Price on exercise of the option. The balance of $2,300,000 was not the subject of a credit. If the option was not exercised the first defendant was entitled to retain the whole $5,450,000. It was not refundable. 7. Clause 4 of the Option Deed provided that the option fee of $150,000 paid to the first defendant under that Deed was to be credited as part payment of the deposit. Clause 6 of the Deed of Second Variation (which provided for an option fee of $3 million) did not similarly so provide. 8. In the option period expiring on 25 October 2013, the balance of the Purchase Price payable to the first defendant upon exercise of the option was $11,850,000, representing the Purchase Price of $15 million less a credit of $3,150,000 for option fees paid. During the same period, the deposit payable on exercise of the option was $600,000, representing 5% of the Purchase Price of $15 million less a credit of $150,000 for the initial option fee paid in that amount. THE AGL GROUP'S LETTER DATED 27 MAY 2013 1. The letter of AGL Energy Limited dated 27 May 2013, critically relied upon by the first defendant in support of his contention that the second defendant had (by the time it contracted with the plaintiff on 28 June 2013) either released its option, or was estopped from asserting that it had not granted a release in his favour, was written in response to a letter dated 23 May 2013 addressed to AGL Energy Limited by the first defendant's solicitors. 2. The solicitors' letter was in terms to the following effect: "We wish to advise we act for [the first defendant] who has requested we enquire whether your company, [the second defendant] may wish not to proceed with the exercise of the option to acquire our client's properties being Lots 101 to 103 inclusive in Deposited Plan 716209 and whether the company would be prepared to release the option at this time. If so please advise. The release would include a buy back of Lots 104 and 105 in the above-mentioned Deposited Plan. We look forward to your response." 1. At the hearing of the proceedings, the first defendant's evidence was that he was not interested in a buy-back of Lots 104-105. He wanted to maximise his return on a sale of Lots 101-103. He wanted a purchaser who would pay him $15 million (or more) without any deduction for the $3,150,000 credit he would have to allow the second defendant if the second defendant exercised its option rights. 2. AGL Energy Limited's letter dated 27 May 2013 in reply to that of the first defendant's solicitors was in terms to the following effect: "Thank you for your letter dated 23 May 2013 regarding AGL's interest in Leafs Gully Farm. As advised to [the first defendant], AGL is interested in receiving a formal offer from [the first defendant] (or the potential buyer of Lots 101 to 105). If this offer is at the level indicated by [the first defendant] for Lots 104 and 105 (ie $1.8 million) and has no unusual contract conditions, AGL will initiate our formal approval processes for entering into a contract to sell these lots, and also to release the current option over the other lots. This AGL response is on the understanding that the formal offer is received in a fortnight from the date of this letter [ie, 10 June 2013]." 1. At the time he read this letter, the first defendant understood that references in this letter to a "formal offer" were references to an offer in writing. He also understood that the time limit expressed in the final paragraph of the letter was important, but he did not appreciate the significance of AGL's internal, administrative imperative of endeavouring to effect a sale of Lots 104-105 no later than 30 June 2013. 2. Upon its proper construction, nothing in AGL's letter bound it in contract to release, or created a reasonable foundation for an estoppel having the effect of releasing, the second defendant's option. 3. At its highest, the letter was no more than a time-specific invitation to treat which, if taken up, would subject any "formal offer" to a formal process within AGL for consideration as to whether the offer should, or should not, be approved. 4. Properly characterised, the AGL letter could not be regarded as "an offer" capable of constituting "a contract" upon "acceptance" by any person. 5. Objectively, it was not intended to create, or affect, legal relations (Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106[24]-[25]; Ashton v Pratt [2015] NSWCA 12 at [49]), but to serve as a non-binding statement of intent; a willingness to consider walking away from the option, no more. 6. The only prospective buyer other than the Mir Group identified in the evidence wanted an extended amount of time for due diligence inquiries that undermined the viability of any expression of interest emanating from that quarter. 7. The "formal offer" of the Mir Group upon which the first defendant relies to claim an entitlement to a release of the option is found in a letter dated 6 June 2013 addressed by the Mir Group's solicitors to AGL Energy Limited. Although it described itself as a "formal offer", it concluded by characterising itself as "in the nature of an expression of interest". It was, in substance, no more. It was expressed to be conditional upon an exchange of contracts. 8. Significantly, in the present context, the offer to purchase Lots 104-105 from "AGL" was also expressly conditional upon AGL assigning to the Mir Group its option to purchase Lots 101-103. 9. Such an offer could not answer the description of a "formal offer" for the purchase of Lots 104-105 capable of compelling AGL (if, contrary to my findings, AGL was liable to compulsion) to release the second defendant's option over Lots 101-103. It was directly inconsistent with any release of option rights. 10. As it happened, the first defendant did not submit, or cause to be submitted, a "formal offer" of the type in contemplation within the time limited by AGL's letter. 11. Contrary to a submission made by the first defendant, AGL's specified time limit cannot be disregarded as inessential. Objectively, the final paragraph of the letter expressly qualified the whole letter. 12. The first defendant's contract and estoppel cases based on the AGL letter must be rejected. CONSTRUCTION OF THE OPTION : THE GRANTEE'S NOMINEE AS PURCHASER 1. The first defendant's alternative case, based upon a construction of the option documentation, has greater substance although it too, ultimately, is illusory. 2. The alternative case is the central question of substance in the proceedings: whether, upon a proper construction of the option documentation, the exercise of the option by the plaintiff as "nominee" of the grantee of the option (by novation, the second defendant) was legally effective in circumstances where the option was granted to the grantee "or its nominee" and expressed to be exercisable by the grantee "or its nominee". 3. The first defendant contends that, upon the proper construction of the option documentation: 1. the plaintiff was not capable of being a "nominee" of the grantee of the option (the second defendant) for the purpose of exercising the option because it was not, as the option documentation contemplated it must be, an entity related to the grantee; and 2. further or alternatively, properly characterised the second defendant's purported "nomination" of the plaintiff was an "assignment" of the option to which clause 10.2 of Second Novation Deed applied and, accordingly, it required the first defendant's prior written consent to be effective. 1. It was by the Second Novation Deed (particularly clause 2) that the second defendant "[assumed] the rights and benefits and the obligations and liabilities" of the grantee under the original Option Deed as varied. 2. If (which I doubt) there was any earlier requirement for the same (AGL) entity to purchase Lots 101-103 as purchased Lots 104-105, the nexis to the two parcels of land was broken when, after the sale of Lots 104-105, the second defendant was novated to the position of Grantee of the option over Lots 101-103. 3. Clause 10.2 of the Second Novation Deed (relied upon by the first defendant) was in the following terms: "10.2 Assignment A party must not assign or otherwise deal with this deed or any right under this deed without the prior written consent of each other party, which must not be unreasonably withheld." 1. Clause 1.3(g) of the Second Novation Deed provided that, in the deed, except where context otherwise required, a reference to "a party" was a reference to a party to the deed, and a reference to a party to a document included the party's executors, administrators, successors and permitted assigns and substitutes. 2. Read literally, the references to a "party" in clause 10.2 would include AGL Power Generation (NSW) Pty Limited (the rights and obligations of which were novated to the second defendant by the terms of the Deed) and the first defendant's daughters and their partners (whose rights and benefits under the varied Option Deed were, according to the terms of the Second Novation Deed, assigned to the first defendant). Nevertheless, on any view, the first defendant was a party to the Second Novation Deed. 3. Although the second defendant became novated to the position of "Grantee" by virtue of the Second Novation Deed, the qualified prohibition in clause 10.2 comprehended by the expression "must not assign or otherwise deal with this deed or any right under this deed" cannot properly be construed as limiting the right of the second defendant under the Option Deed (as varied and novated) to nominate a Purchaser. That right is not one that can fairly be described as a "right under [the Second Novation Deed]". 4. By clause 2 of the Second Novation Deed, the Option Deed (as varied and novated) took effect as if the second defendant was named in it as the Grantee. The Second Novation Deed affirmed the continuing operation of the Option Deed, and the Option Deed (as varied and novated) was the principal source of the parties' rights and obligations: Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Limited (2000) 201 CLR 520 at 533[22] and 537[42]. 5. The right of the Grantee under that Deed to nominate a Purchaser was an essential feature of the grant. Clause 10.2 of the Second Novation Deed, a subsidiary provision, could not displace that right of nomination by subjecting it to any form of veto residing in the first defendant. To construe the clause that way would be, impermissibly, to derogate from the grant. 6. Having granted an option to the second defendant by reference to the Option Deed as a principal purpose of the transaction it records, the Second Novation Deed cannot properly be construed as taking away the means of enjoying the option by requiring its exercise be contingent on the first defendant's consent: Birmingham, Dudley and District Banking Company (1888) 38 ChD 295 at 312-313, approved in Concrete Pty Limited v Parramatta Design & Developments Pty Limited (2006) 229 CLR 577 at 606[99]-[100], Cf, 585 [19] n 20; Trego v Hunt [1896] AC 7 at 25. 7. No submission was put to the Court that the absence of any "prior written consent" from the first defendant to the second defendant's nomination of the plaintiff, or to the plaintiff's purported exercise of the option as the second defendant's nominee, could be overcome by a finding that it would have been unreasonable on the part of the first defendant to withhold his consent. 8. The first defendant's contentions about the effectiveness of the second defendant's nomination of the plaintiff, and the plaintiff's purported exercise of the option as nominee of the second defendant, are related to his contention that, even if the second defendant's nomination of the plaintiff was effective to permit the plaintiff to exercise the option, that nomination did not operate to assign to the plaintiff (a stranger to any and all contracts between the first defendant and the AGL Group) any rights of property, including any contractual right (said by the first defendant to be "personal" to the second defendant) to offset against the deposit payable upon exercise of the option, and the Purchase Price payable for Lots 101-103, option fees paid to the first defendant by the AGL interests on the account of the second defendant. 9. Whether the plaintiff was entitled to any credit for option fees paid to the first defendant is a question to which this judgment must in due course return. 10. The option documentation must be construed, as a whole, according to its terms. 11. In the ultimate analysis, it must be construed on the basis of what it says, not on the basis of what it does not say. Nevertheless, for the record, notice must be taken of the absence from the option documentation of any qualification of the grantee's right of nomination of a purchaser limiting the identity of a nominee to a company related to the grantee, or some other class of legal personality. 12. Qualified rights of "nomination" and qualified covenants against "assignment" are not uncommon in commercial or conveyancing contracts: eg, St Hilliers (Developments) Pty Limited v Radmanovich [2002] NSWSC 524; (2003) NSW Conv R 56-030 at [9]-[10]. They make no appearance in the present documentation. 13. Its terminology is confined simply to references to the grantee "or its nominee". That terminology, commonly encountered, allows an option to be exercised by the grantee or the nominee: Westminster Estates Pty Limited v Calleja [1970] 2 NSWR 526 at 531. 14. The documentation is silent as to the nature of the relationship, if any, between "the Grantee" and "its nominee" beyond the fact of "nomination". The "confirmation" document required to be served on the first defendant together with a "Notice of Exercise of Option" at the time of exercise of the option by a nominee simply required "the Grantee" and "the nominee" to acknowledge that "the nominee" was the nominee of the Grantee and that the nominee was "the party entitled to exercise the option in accordance with the provisions of clause 3.3 of the of the Deed of Option". 15. The option documentation is silent also about the purpose of the Grantor in making a nomination. It says nothing about the power of nomination being governed by a particular purpose. Nothing in the documentation required the Grantee to purchase, or to effect a purchase of, the land for a particular purpose. 16. Nothing in the option documentation required the Grantee, in making decisions about whether and how the option should be exercised, to consult any interests but its own. 17. The first defendant, as grantor of the option as varied, had no continuing interest in the land the subject of the option (Lots 101-103) after the completion of a purchase pursuant to the documentation. There is no suggestion that the identity of the purchaser of his land was a material concern of the first defendant. 18. The original Option Deed contained no covenant against assignment. The closest it comes to that is: 1. first, a definition, in clause 1.1, of the expression "Grantee" to mean "the Grantee [originally, AGL], its successors and assigns"; and 2. secondly, in clause 1.2(f), a statement that, unless the contrary intention appears, a reference in the Option Deed to "a person" includes "a reference to the person's executors, administrators, legal personal representatives, successors and permitted assigns". 1. These provisions stop well short of a covenant against assignment affecting the Grantee. 2. In any event, a right of "nomination" is conceptually distinct from an "assignment". It is broader, and it has a different field of operation. An assignment contemplates a transfer of rights away from the assignor as an essential feature. A nomination is not necessarily so limited. Indeed, in the context of the option documentation under consideration, a "nominee" retains a character of the Grantee's "nominee", as is implicit in use of the expression "Grantee or its nominee". 3. The Grantee's right of nomination is also conceptually distinct from a "right of novation", if there be any useful meaning that could attach to such a "right", inherently a "right" that requires consensus. The Grantee was not deprived of its status as a contracting party, and its nominee was not substituted for it as a contracting party, under the Option Deed merely by reason of the Grantee exercising its right of nomination. By a standard "further assurance" provision, in clause 14 of the Option Deed (as varied and novated), amongst other contractual provisions, the first defendant remained under a contractual obligation to the second defendant to give effect to the Option Deed; the second defendant's nomination of the plaintiff; and the contract between the plaintiff and the first defendant arising from the plaintiff's exercise of the option. 4. Implicit in the option documentation, as an entitlement for which option fees were paid to the first defendant, was a right in the Grantee to nominate the "Purchaser", an expression defined by clause 1.1 of the Option Deed to mean "the person who exercises the Option". 5. This was a valuable right, not readily to be read down as the first defendant contends. It is a right capable of characterisation, in itself, as a property right. It was the subject of a "grant" by the first defendant. 6. Although it is the plaintiff (as a principal, in its own right), rather than the second defendant, that seeks an order for specific performance against the first defendant, the second defendant has a material interest (quantified, if quantification be necessary, by reference to the contract made by the plaintiff and the second defendant on 28 June 2013) in having its nominee's entitlement to purchase the subject land enforced. 7. No question of parties arises in relation to the constitution of the proceedings because the second defendant's joinder in the proceedings is not necessary for vindication of the plaintiff's claim against the first defendant. However, if (contrary to my opinion) it be the case that the plaintiff's entitlements against the first defendant require the second defendant to lend its name to a suit against the first defendant or simply to be bound by a determination of the plaintiff's rights vis-á-vis the first defendant, the second defendant's joinder overcomes any procedural impediment to that claim that might arise from the absence of the second defendant: cf, Karaguleski v Vasil Bros & Co Pty Limited [1981] 1 NSWLR 267 at 269G-270C. 8. Viewed as an irrevocable offer to sell the subject land, rather than merely a grant of a property right, the Option was an offer by the first defendant to sell the land to "the Grantee or its nominee". When the plaintiff exercised the option as the second defendant's nominee, it contracted with the first defendant as a principal, in its own right, accepting an offer made to it (as the second defendant's nominee), not as an agent of the second defendant: White City Tennis Club Limited v John Alexander's Clubs Pty Limited [2008] NSWSC 1225 at [127], not materially displaced on appeal (2010) 241 CLR 1. 9. The fact that option fees paid to the first defendant were paid by "the Grantee" rather than "its nominee" is not a cause for complaint by the first defendant. The contractual principle that "consideration must move from the promisee" is satisfied if it moves from any one of joint promisees: Coulls v Bagot's Executor & Trustee Co Limited (1967) 119 CLR 460 at 478-479, 486 and 493. As the second defendant's nominee, the plaintiff was a joint promisee. 10. Just as an offer may be made to "the whole world" (Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256), an offer can be made to a narrower class of persons: in this case, to "the Grantee" or "its nominee": Westminster Estates Pty Limited v Calleja [1970] 1 NSWLR 526 at 531-532. 11. There is nothing in the "doctrine of privity of contract" (established by Tweddle v Atkinson (1861) 1 B&S 393; 121 ER 762, confirmed by Dunlop Pneumatic Tyre Co v Selfridge & Co Limited [1915] AC 847, accepted by Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43 at 67 and called into question in Trident General Insurance Co Limited v McNiece Bros Pty Limited (1988) 165 CLR 107 at 121 and 148-149) that operates as an impediment to the plaintiff's claim for specific performance. 12. In any event, as between the first and second defendants (at the very least) the option agreement is valid and enforceable, even if it is to be regarded as an agreement made for the benefit of the second defendant's "nominee" as a "third-party": Dalton v Ellis (2005) 65 NSWLR 134 at 143. 13. In these proceedings, it would have been open to the second defendant, for the benefit of the plaintiff, to enforce the contract consequent upon the plaintiff's exercise of the option as its nominee: Karaguleski v Vasil Bros & Co Pty Limited [1981] 1 NSWLR 267 at 270B-C, citing Clark v Lonergan (1960) 78 WN (NSW) 367 at 370 and Sidney Eastman Pty Limited v Southern (1962) 80 WN (NSW) 548 at 550-551. 14. Whether a promisor (in this case the first defendant) must perform the contract for the benefit of "the third party" (if the plaintiff can be so characterised), leaving aside any support that party might have from the promisee (on this analysis, the second defendant), is a matter of construction of the contract: Cathels v Commissioner of Stamp Duties (1959) 79 WN (NSW) 271 at 272. 15. The "contract" represented by the option documentation (ie, the Option Deed as varied and novated) is, in terms, unequivocal. The first defendant granted an option to the second defendant "or its nominee", on the basis that the option was exercisable by the "nominee", and "the person who [exercised] the Option" became "the Purchaser" of the subject land under a contract "made on and by virtue of exercise of the Option". 16. In my opinion, the fact that the option was exercised by the plaintiff as the second defendant's nominee provides no impediment to an order for a grant of specific performance at the suit of the plaintiff, especially in light of the second defendant's joinder in the proceedings and the absence of any competing claim by it to the benefit of Lots 101-103. 17. Neither is there any impediment to the plaintiff's claim for that relief in the absence of any "consent" on the part of the first defendant to the plaintiff's nomination or its exercise of the option. The first defendant granted to the second defendant an option, coupled with a right of nomination, exercisable by the second defendant without recourse to, or contingent upon consent given by, the first defendant. OPTION FEE CREDITS 1. The first defendant's submission that the plaintiff is not entitled to an allowance for option fees paid by or on account of the second defendant is closely associated with his contentions to the effect that, upon a proper construction of the option documentation: (a) the plaintiff has the character of a "stranger" to the option agreement made between the defendants; and (b) any entitlement to a credit for option fees paid to the first defendant was "personal" to the second defendant in the sense that it has not inured for the benefit of the plaintiff as a stranger to the option agreement. 2. These contentions are bound to fail because, on a proper construction of the option documentation: (a) the plaintiff, as the second defendant's "nominee", is not correctly characterised as a "stranger" to the option agreement; (b) there is nothing in the option documentation that requires or allows option fee "credits" to be characterised as personal to the second defendant; (c) the option documentation (clause 4 of the Option Deed and clause 6 of the Deed of Second Variation) specifically provided for the option fee to be "credited as part payment of the Deposit Amount [to the extent of $150,000] and the purchase price [to the extent of $3,150,000] payable by the Purchaser under the Contracts"; (d) Clause 3.1(b) of the Option Deed provided for the Option Fee of $150,000 to be deducted from the deposit paid on exercise of the option; and (e) definition of the terms "Option" and "Contracts", in clause 1.1 of the Option Deed, by reference to a Pro Forma Contract annexed to the Option Deed does not allow the pro forma contract to rise above the text of the Option Deed, including clause 4, or clause 6 of the Deed of Second Variation. 3. If and to the extent that (contrary to my opinion) any entitlement to a credit resided in the second defendant "personally" rather than the plaintiff as the second defendant's "nominee", it would be enforceable in these proceedings by the plaintiff via its joinder of the second defendant: Karaguleski v Vasil Bros & Co Pty Limited [1981] 1 NSWLR 267 at 270B-C There is no basis in the documentation for attribution of the character of a "personal right" to rights for a credit allowance on exercise of the option. Clause 4 of the Option Deed, clause 6 of the Deed of Second Variation and the definition of "Purchaser" in clause 1.1 of the Option Deed speak to the contrary. ALLEGED UNDERPAYMENT OF THE DEPOSIT 1. It follows from what I have written that the first defendant's contention that the plaintiff paid $150,000 less than the deposit it was required to pay upon exercise of the option must be rejected. 2. The plaintiff was entitled to the benefit of a credit of $150,000 (against the $750,000 otherwise payable) by virtue of clause 4 of the Option Deed. 3. Nothing in the sequence of variations and novations affecting that Deed operated so as to require, or allow, a contrary conclusion. 4. In paying a $600,000 deposit, the plaintiff paid the deposit required under the contract as made upon exercise of the option. THE FIRST DEFENDANT'S ALLEGATIONS OF MISLEADING AND DECEPTIVE CONDUCT AND ESTOPPEL BASED ON ALLEGED MISREPRESENTATIONS AND AGREEMENT ON BEHALF OF THE PLAINTIFF 1. The first defendant claims that the Mir Group (later personified in the plaintiff but, on this occasion, represented by Mr Sam Mir) engaged in misleading and deceptive conduct (at a meeting between Mr Mir, the first defendant and Mr Dodd, a real estate agent, at the home of Mr Mir) on the evening of 6 June 2013 by: 1. representing to the first defendant, and agreeing with him, that the Mir Group would (i) purchase Lots 104-105 from the second defendant for a price of $1.8 million and (ii) on the basis of the AGL option being released, purchase Lots 101-103 from the first defendant for $15 million; 2. having no intention to make those representations good and, accordingly, no reasonable grounds for making the representations in the first place; and 3. concealing from the first defendant that the Mir Group had, earlier that day, submitted a formal offer to AGL Energy Limited to purchase Lots 104-105 for $1.8 million conditional upon taking an assignment of the second defendant's option rights over Lots 101-103. 1. The first defendant contends that he acted to his detriment on the basis of the Mir Group's representations in: (a) arranging for his solicitor to submit a draft contract to the Mir Group; (b) desisting from pursuing alternative purchasers; and (c) encouraging both the Mir Group and the second defendant to proceed towards consummation of a deal designed to net the second defendant $1.8 million and himself $15 million on a sale of Leafs Gully Farm. 2. I very much doubt that there was any unequivocal offer on the part of the Mir Group to pay the first defendant $15 million for Lots 101-103. It is much more likely that each participant in the meeting of 6 June 2013 heard what he wanted to hear, not what was said. In substance, the Mir Group was prepared to pay "the same purchase price" as the second defendant, meaning thereby a price subject to a credit allowance for option fees paid. In contrast, the first defendant spoke of "the same purchase price" as if unconstrained by any obligation to bring option fees to account. Each negotiator was cagey, and motivated, enough to play a close hand, knowing and expecting each other participant to do likewise, hoping to manoeuvre everybody to an outcome favourable to himself. The first defendant, fixated on what he wanted, may well not have heard, or appreciated, nuanced statements and reservations clearly expressed by Mr Mir. I cannot exclude that possibility. 3. The problem, if a problem it truly be, was that: (a) on the one hand, Mr Mir suspected that the first defendant would have to give the second defendant credit for option fees earlier paid in the event that the second defendant purchased Lots 101-103, and he wanted his group of companies to obtain the benefit of any such credits; and (b) on the other hand, the first defendant knew that he had an obligation to give such credits to the second defendant, but he was anxious to conceal from the Mir Group both the fact, and the extent, of that obligation. Neither man was entirely frank with the other. Neither man expected the other to be so. They had that much, at least, in common. 4. A source of protection for each of the principals in their negotiation process was a common understanding that, if they were to do business, it was on the basis that they had no binding agreement unless and until, through their respective solicitors, contracts were exchanged. 5. Mr Dodd, the real estate agent, was not entirely disinterested in his ready assumption that a deal had been orally agreed at a purchase price of $15 million for Lots 101-103. He stood to recover a hefty commission. 6. Nevertheless, in critical respects his evidence supported that of Mr Mir and, critically, in despatching a Sales Advice Notice to the parties' respective solicitors on 7 June 2013 he expressly provided for rights of the parties to be set out in a contract to be formed by the usual process of an exchange of contracts. There could be no "done deal" between the Mir Group and the first defendant without full disclosure of the true arrangement between the defendants, and an opportunity for the plaintiff to verify the fact, and extent, of the first defendant's obligation to allow credits in favour of the second defendant should the second defendant exercise the option. 7. When, on 11 June 2013, the first defendant's solicitor sent a draft contract to the solicitors for the Mir Group, he did so under cover of a letter to the following effect: "In accordance with the agent's sales advice we submit contract herein which has not been approved by the vendor. Accordingly the contract is submitted on the basis no contractual obligations will arise until exchange of contract [sic] and payment of the deposit. We are awaiting instructions from the vendor as to the improvements, inclusions and the terms of the lease [sic] we shall communicate upon receipt of instructions." 1. Significantly, the first defendant did not at this point regard himself as contractually bound to the Mir Group. He regarded himself as entirely at liberty to pursue other possibilities. 2. A file note prepared by the first defendant's solicitor on 11 June 2013, before despatch of the solicitor's letter to the Mir Group's solicitors evidences that. 3. It summarises a 10 minute telephone conversation between the solicitor and his client, the first defendant. 4. The first defendant evidently called the solicitor. 5. The file note is to the following effect: "Tell-in [the first defendant]. He apologising for the failure to attend on Thursday. He advising that the other purchaser [that is, the purchaser who wanted an extended due diligence period] is chasing him and he thinks he [the other purchaser] wants to offer some serious money. He will talk to him but he thinks he may prefer to deal with Mir. He understands Mr Mir has sent a letter to AGL and AJ [Atkins Jones, the solicitor's firm] will keep in touch with AGL on the release of the option. Advising we will be emailing to the solicitors the contract today. We advising we should wait until such time as we have a response before we have [the first defendant] down to go over the contract. He agreeing with that. He will keep us advised of any further negotiations." 1. This is entirely unremarkable in the context of a conveyancing transaction in which no party is bound unless and until a formal exchange of contracts takes place through the agency of solicitors. It is fundamentally inconsistent with a case predicated upon allegations of an oral contract said to be immediately binding on the parties and any notion of detrimental reliance upon such an agreement. 2. The first defendant's allegation that the plaintiff engaged in misleading and deceptive conduct, and his related allegation that the plaintiff bound itself by an estoppel to purchase Lots 101-103 from him at a price of $15 million, fail on the facts. 3. I am not satisfied that the Mir Group ever unequivocally represented, or agreed, on or about 6 June 2013 that it would pay more for Lots 101-103 than the amount payable by the second defendant upon an exercise of its option. 4. In any event, I do not accept that the first defendant ever relied on any representation or oral agreement of the type for which he contends in these proceedings. I am quite satisfied that he did not. He was, at all material times, pursuing his own interests, trusting and relying on nobody and always pursuing a "main chance", always remaining open to other offers ALLEGATIONS OF UNCONSCIONABILITY AND CHALLENGES TO CREDIT 1. In various ways, accommodated to particular submissions, the first defendant contends that the plaintiff and the second defendant have acted in a manner that was unconscionable. 2. That contention finds expression in support of submissions about estoppel; criticism of the credit of witnesses; and, ultimately, a submission (based, inter alia, on Summers v Cocks (1927) 40 CLR 321 at 331) that an order for specific performance should be declined on discretionary grounds. 3. I am not prepared to attribute unconscionability of any description to the plaintiff, the second defendant or their respective witnesses. I make no findings of credit adverse to any witness other than the first defendant himself. 4. By the time he came to give evidence the first defendant (a man of advanced years) had convinced himself of the rectitude of his cause, and he struggled to see the merits of any alternative point of view. He was forgetful. He was inconsistent. He tailored evidence to suit his cause. He was chronically hard of hearing and, it seems, had been so for some time reaching back, I infer, to 2013. Whether or not his deafness did reach so far back, I cannot, now, be confident of the reliability of his evidence. 5. I intend no disrespect to the first defendant personally in recording, as I fear I must, that I have doubts about the reliability of his evidence absent corroboration. 6. The source, and limits, of the parties' respective rights and obligations are to be found in the formal documentation governing AGL's option (as varied and novated), not in any less formal communication or commercial manoeuvring. 7. The parties were engaged in commercial negotiations. They were entitled to consult, and did consult, their own interests. Each expected the others to do likewise. 8. The negotiations were conducted in the context of rights known to reside in the second defendant under option documentation, the existence of which was known to, if not fully appreciated by, everybody engaged in the negotiations. 9. The parties' negotiations occurred in circumstances in which, in conformity with customary conveyancing practice in NSW, there was a common understanding that any agreement reached between the parties relating to a disposition of the land would bind nobody unless and until there was an exchange of contracts, or other documentation formally executed, through the agency of lawyers: Allen v Carbone (1975) 132 CLR 528 at 532-533. CONCLUSION 1. On the findings that I have made, the plaintiff is entitled to declaratory relief as sought, and an order for specific performance of the contract made between it and the first defendant when it exercised the option to purchase Lots 101-103 as nominee of the second defendant; the purchase price payable by the plaintiff is $11.85 million; the first defendant's cross summons must be dismissed; and the second defendant is entitled to dismissal of the claims for relief made against it by the plaintiff. 2. Prima facie, upon the basis that costs should follow the event, the first defendant should pay or bear the costs of both the plaintiff and the second defendant. The second defendant's participation in the proceedings is a direct consequence of the nature of the case for which the first defendant has unsuccessfully contended. ORDERS 1. Subject to allowing the parties an opportunity to make submissions about the form of the relief to be granted, and costs, I propose to make the following orders: 1. DECLARE that there is a binding and enforceable contract between the plaintiff as purchaser and the first defendant as vendor for the purchase and sale of the land known as Leafs Gully Farm, being Lots 101, 102 and 103 in Deposited Plan 716209, for the sum of $11,850,000. 2. ORDER that that contract be specifically performed and carried into execution. 3. ORDER that, in default of the first defendant complying with Order 2, the Registrar be empowered to execute all such documents and do all such things in the name, and on behalf, of the first defendant as may be necessary for the contract to be specifically performed. 4. ORDER that the amended summons be dismissed as against the second defendant. 5. ORDER that the amended cross-claim be dismissed. 6. ORDER that the plaintiff pay the second defendant's costs of the proceedings. 7. ORDER that the first defendant pay the plaintiff's costs of the proceedings, including any costs payable by the plaintiff to the second defendant. 8. RESERVE liberty to apply for further orders to enforce, or in the working out of, these orders. 9. ORDER that Exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined. ********** Amendments 12 October 2015 - Paragraph 39, delete "a" before "the AGL companies". Paragraph 89, change the word "or" before the words "the second defendant" to read "for". Paragraph 92, delete the word "the" in the first line before the reference to"Tweddle v Atkinson". 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. Decision last updated: 12 October 2015