2620 Ipswich Road Pty Ltd & Anor v DN Holdings Qld Pty Ltd [2022] QCA 49 (2022) 10 QR 439

[2022] QCA 49 COURT OF APPEAL MORRISON JA BOND JA CALLAGHAN J Appeal No 14175 of 2021 SC No 11985 of 2021 2620 IPSWICH ROAD PTY LTD First Appellant ACN 127 184 883 McENIERY PROPERTIES PTY LTD Second Appellant ACN 092 592 857 v DN HOLDINGS QLD PTY LTD Respondent ACN 644 106 356 BRISBANE FRIDAY, 8 APRIL 2022 JUDGMENT [1] BOND JA: This appeal concerns the proper construction of: (a) a Call Option Deed between the present appellants on the one hand as grantor and the present respondent on the other hand as grantee in relation to certain land at Darra; and (b) the purchase contract brought about by the exercise of the call option. [2] It is convenient to refer to the parties as the appellants and the respondent, even when describing events which occurred before the institution of the appeal. -- 1 of 7 -- 2 [3] The evidence before the primary judge revealed that the respondent had taken steps to exercise the call option and thereby to create a contract by which it could purchase the land. However, the day after the exercise of the call option, the appellants took steps to terminate the contract and to forfeit a contractual deposit to themselves. [4] By a further amended originating application, which, in effect, should be treated as the claim that went to trial, the respondent had sought: (a) a declaration that it had duly exercised a call option contained in a Call Option Deed dated 2 October 2020 on 30 September 2021; and (b) a declaration that the purported termination of the contract arising from the exercise of the Call Option Deed on 1 October 2021 was invalid and ineffective to terminate the contract or to cause forfeiture of the deposit which had been paid. [5] That claim succeeded and by an ex tempore judgment, the primary judge made declarations effectively in the same terms as had been sought, and also ordered that the appellants pay the respondent’s costs of the application. [6] The appellants now seek to overturn their loss before the primary judge. They seek to have the declarations made in favour of the respondent set aside and they seek to have the orders made in their favour for costs of the appeal and costs of the application before the primary judge. [7] For reasons which follow, the appeal has no merit. [8] It is necessary, first, to identify the relevant contractual terms between the parties. [9] By clause 1 of the Call Option Deed, the appellants granted the respondents and irrevocable call option in respect of land at Darra of which the appellants were the registered proprietors. [10] Clause 2 of the Call Option Deed was in the following terms: “2 Exercise of Call Option Procedure 2.1 The Grantee may exercise the Call Option at any time before 5pm Brisbane time on the Call Option Expiry Date by delivery to the Grantor of: 2.1.1 the Call Option Exercise Notice duly executed by the Grantee; 2.1.2 2 copies of the Contract signed by the Grantee and completed by Inserting: (a) the Exercise Date as the Contract Date In Item A of the Contract Items Schedule; and (b) the particulars of the Grantee as the Purchaser; and 2.1.3 a bank cheque for the deposit payable under the Contract, in favour of the Deposit Holder under the Contract. -- 2 of 7 -- 3 Contract entered into 2.2 On the exercise of the Call Option under clause 2.1, the Contract will be taken to have been entered into on that date, whether or not the Contract is signed by the Grantor. 2.3 The Grantor must nevertheless sign the 2 copies of the Contract delivered on exercise of the Call Option and forward to the Grantee one signed copy of the Contract within 7 Business Days after the Exercise Date. Call Option Fee 2.4 The Call Option Fee is non-refundable.” [11] Relevant definitions were set out in clause 9.1 as follows: (a) “Call Option Exercise Notice” meant the notice in the form set out in schedule 2; (b) “Call Option Expiry Date” meant 30 September 2021; (c) “Call Option Fee” meant $10.00; (d) “Contract” meant an agreement for sale of the property in the form set out in schedule 1; (e) “Exercise Date” meant the date on which the call option was exercised; and (f) “Property” meant the subject land at Darra, which was identified by reference to the street address and the relevant property description. [12] Schedule 1 was a standard Queensland Law Society and REIQ form of Contract for Commercial Land and Buildings. It took the familiar form of a reference schedule in which particular details could be set out, followed by documents setting out standard commercial terms. [13] As to the reference schedule, the following observations may be made: (a) Item A had space for the insertion of a Contract Date. Item A had not been completed in schedule 1 and had been left blank for a date to be inserted. (b) Item G Deposit Holder had space for a name and telephone number to be inserted. It had been completed by the insertion of “Hopgood Ganim Trust Account” and no telephone number had been inserted. (c) Item N Purchase Price contained space for the insertion of a numeric amount. It had been completed by the insertion of “$7,000,000 (PLUS GST)”. (d) Item O Deposit had space for (i) the insertion of a numeric amount to specify the “Initial Deposit payable on the day the Buyer signs this contract unless another time is specified below”; (ii) the insertion of a further numeric amount for a Balance Deposit (if any) and for the insertion of when the Balance Deposit was payable if there was one; and -- 3 of 7 -- 4 (iii) the insertion of details concerning the Deposit Holder’s Trust Account by identifying the bank, the BSB and the account number, but the only information actually inserted was the numeric amount of $350,000. [14] As to the standard commercial terms part of schedule 1: (a) Clause 3 provided: “3. DEPOSIT 3.1 The Deposit shall be paid by the Buyer to the Deposit Holder at the times stated in item O. 3.2 If the Buyer: (a) fails to pay the Deposit as provided in clause 3.1; (b) pays the Deposit by cheque which is post-dated; or (c) pays the Deposit by Cheque which is not honoured on presentation; then, the Buyer shall be in substantial breach of this Contract and the Seller may: (i) affirm this Contract and exercise the rights expressed in clause 13.2; or (ii) terminate this Contract and exercise the rights expressed in clause 13.3. 3.3 The rights and powers conferred by clause 3.2 are in addition to any other rights the Seller may have at law or in equity. 3.4 The Deposit shall be retained by the Deposit Holder until settlement or earlier termination of this Contract whereupon the Deposit Holder shall pay the Deposit to the person entitled to it.” (b) Amongst other things, clause 13.3 permitted a seller who had terminated the contract consequent upon a buyer’s failure to pay the deposit as provided in clause 3.1 to forfeit the deposit to themselves. [15] The primary judge made the following unchallenged findings of fact: (a) On 30 September 2021, the respondent delivered to the appellants: (i) the Call Option Exercise Notice duly executed; (ii) two copies of the contract signed by the respondent and completed as required by clause 2.1.2; and (iii) a bank cheque for the deposit of $350,000 payable to the Hopgood Ganim Trust Account. (b) Those documents were the documents referred to in clauses 2.1.1, 2.1.2, and 2.1.3. (c) They were delivered to the appellants consistently with the contractual terms providing for the giving of notice by one party to the other. -- 4 of 7 -- 5 (d) On 1 October 2021, the appellants by their solicitors, purported to terminate the contract on the basis that the deposit payable under it was payable on the day the contract was signed by the respondent, and because a signed copy of the contract was in existence prior to the date on which the option was exercised, the deposit had not been paid on the day the contract was signed, but was paid on a later date, namely, the date on which the call option was exercised. (e) The respondent’s director had, in fact, signed the contract, which was delivered with the Call Option Exercise Notice, much earlier, namely, on 16 September 2021, and then again on 28 September 2021 or at about that time. (I observe parenthetically that it seemed to be common ground that the two copies which were provided with the Call Option Exercise Notice were, in fact, signed on 16 September 2021, although actually bearing the date 30 September 2021.) [16] The notice of appeal contained a suggestion of error by the primary judge in concluding that a contract had been formed by the valid exercise of the Call Option Notice. No argument was pressed either orally or in writing before this Court to that effect. This point may be ignored. [17] Before this Court, as they did before the primary judge, the appellants sought to justify their termination in this way by developing this argument: (a) It could be accepted that the respondent had validly exercised the call option, thereby creating the position referred to in clause 2.2 of the Call Option Deed, namely, an agreement for sale of the property in the form set out in schedule 1 would be taken to have been entered into on the date of exercise of the option, namely 30 September 2021. (b) However, clause 3.1 of that contract required the deposit to be paid by the respondent to the Deposit Holder at the time stated in item O of the reference schedule and item O of the reference schedule had specified not only the amount of $350,000 but “initial deposit payable on the day the buyer signs the contract unless another time is specified below”. (c) No other time was “specified below”, therefore the deposit had to have been paid on the date the buyer signed the contract. On the evidence, that was earlier than the date of exercise of the option, namely, it was on 16 September 2021, and therefore the deposit had not been paid on the date clause 3.1 required. Therefore the right of termination existed and it was validly exercised the next day. [18] The proper approach to the construction of commercial contracts is not in doubt. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, French CJ and Nettle and Gordon JJ wrote: “[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. [47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require -- 5 of 7 -- 6 consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. [48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. [49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. [50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations. [51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties ... intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.” [19] These principles of contractual construction were subsequently approved by the High Court in Victoria v Tatts Group Ltd (2016) 90 ALJR 392 per French CJ and Kiefel, Bell, Keane and Gordon JJ at [51]. [20] Critical to the resolution of the validity of the argument advanced by the appellants is the appreciation that the most important context relevant to the proper construction of the contract brought about by the exercise of the call option is the context that that contract was brought about by the exercise of the call option and in the way provided in the call option. [21] The appellants sought to engage this Court with cases said to provide “the history of these deposit payment clauses”, being a reference to standalone contracts in a form analogous to schedule 1 to the Call Option Deed. They sought to take us to arguments based on -- 6 of 7 -- 7 Brien v Dwyer (1978) 141 CLR 378. But arguments based on the proper construction of contracts brought about in a different context were, to my mind, irrelevant to the present debate. [22] The appellants’ argument seeks to give a primacy to the literal terms of the pro forma contract, which was schedule 1 to the Call Option Deed, but in this particular context, that must be regarded as contrary to the evident intention of the parties. The appellants’ argument sought to start with the pro forma contract, ignoring any context, and then to go back to the Call Option Deed. In my view, that was the wrong way to approach things. In my view, the appellants’ argument works a commercial nonsense. [23] In my view, it was evident that the reasonable businessperson standing in the shoes of the parties would conclude that the parties contemplated giving primacy to the terms of the Call Option Deed concerning what was necessary to bring about a binding contract of sale and purchase of the subject land. Such a person would conclude that the parties must be taken to have contemplated that if the respondent complied with the terms of clause 2.1 of the Call Option Deed within the timeframe stated to be permissible by that clause, such a binding contract would be brought about between them. The reasonable businessperson would have concluded that the parties could not be taken to have contemplated that the contract they brought about would have been immediately defeasible by the grantor of the call option by virtue of the historical accident that the respondent had physically signed the contracts on a date prior to the Call Option Exercise Date and had not provided the deposit at that earlier date. The reasonable businessperson would have concluded that if the parties had intended that outcome, they would have drawn clause 2.1 of the Call Option Deed differently. [24] The primary judge was of the same view observing: “If there were any doubt about the objective commercial meaning of a contract, in this particular case, the specific terms contained in clause 2.1 of the deed remove any doubt. The parties plainly gave particular consideration to the mechanism by which the option was to be exercised and a binding contract was to come into effect between them. Those express conditions in clause 2.1 of the deed do not require a payment of a deposit at any time before the day that the option is exercised. They permit that payment to occur up to 5 pm on the option expiry date; in this case, 30 September 2021. The deposit cheque was delivered in accordance with clause 2.1 by that time.” [25] In my view, the primary judge was right. The appellants’ construction of the contract was and is untenable. The appeal should be dismissed with costs. [26] MORRISON JA: I agree. [27] CALLAGHAN J: I agree. [28] MORRISON JA: The orders of the Court are: 1. Appeal dismissed. 2. The appellants must pay the respondent’s costs of and incidental to the appeal. -- 7 of 7 --