The $250k call option fee paid by a would-be buyer in March 2015 to secure the $2.5 million residence was intended to form the deposit for the contract that would come into existence once the option was activated.

Call optionAs is usual, the option deed formulated how it was to be exercised namely, by no later than 10 September by personal delivery to the grantor’s solicitors in Potts Point Sydney of a “notice of exercise” accompanied by two copies of the contract signed by the buyer and its guarantor and a cheque for the “balance of 10% deposit”.

On 2 September the buyer’s solicitors emailed their counterparts opposite to say “our client will exercise the call option and deliver the signed copy of the contract to your office”.

That they did on 9 September under cover of a letter that contained one contract only and no cheque.

The grantor, Mary Chan, subsequently claimed that the option had not been validly exercised because of those deficiencies and because neither the email nor the covering letter clearly stated that the option was being exercised.

Buyer Haixing Group P/L promptly lodged a caveat to protect its interest and safeguard the substantial deposit.

The dispute came before Justice Rowan Darke in the NSW Supreme Court who noted that settled law required a notice of exercise must be expressed “clearly and unequivocally”.

The “real issue,” explained his honour was though, whether the recipient “would fairly have understood it in all the circumstances of its receipt as notice from the plaintiff that it was thereby seeking to exercise the option as notice from the plaintiff that it was thereby seeking to exercise the option.”
In his view – even though absent in the letter enclosing the signed contract any reference to the email of 2 September, “it should be understood in the light of that earlier communication, that there would be an exercise of the call option and delivery of the signed copy of the contract.”

What of the failure to provide a cheque?

Given the full deposit had already been paid by way of option fee, the provision of the deed should not – so held the court – be construed as the production of a cheque made out to “zero”.

But the buyer still had one major hurdle to clear. Should the provision of only one signed contract – rather than two – be fatal to the validity of its exercise?

Chan – determined to defeat the caveat and retain the deposit – contended that the requirement to deliver two copies contracts required strict observance and anything less would not suffice.

Haixing defended on the basis that the requirement for two contracts to be delivered was a provision “only the benefit of the buyer,” in that in the ordinary course of conveyancing, one of the two would be returned to it after signing by Chan.

Rejecting that argument, Justice Darke ruled – because the deed specified that the option could only be accepted “strictly in accordance with the provisions of this deed” – was not validly exercised by the delivery of one contract only. Having not been validly exercised, it must be considered to have lapsed.

The court allowed Chan a summary judgment entitling her to retain the $250k and requiring immediate removal of the buyer’s caveat.

Haixing Group Pty Ltd v Mary Ann Chan [2015] NSWSC 1637 Darke J 05/11/2015
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