The Supreme Court of Victoria–Court of Appeal found that a typical deemed receipt of notices provision in a Unit Subscription and Put Option Deed applied notwithstanding that actual receipt was 2 days earlier such that a mandated 10 day period until completion ran from the day of deemed receipt rather than the earlier day of actual receipt. In making its findings, the Court had regard not only to the terms of the Deed but also the potential unreasonable consequences that could flow if the deeming provisions did not apply. Contracting parties should be very clear in their contracts if a general notices clause is not to apply to a specific notice and more importantly, they should be comfortable when drafting provisions to this effect, that there will be no unreasonable or unintended consequences
This case arose out of a Unit Subscription and Put Option Deed (Deed) which allowed APN Funds Management Limited (APN) to put to Macarthur Cook Real Estate Funds Ltd (MCL) a number of units held by APN in Macarthur Cook Office Property Trust (Trust).
Clause 5 of the Deed provided that:
- APN can exercise the put option by delivering an Exercise Notice (in the form annexed to the Deed) to MCL;
- to be validly exercised, the put option must be exercised by service on MCL of an Exercise Notice; and
- the Completion Date for the transfer of the units pursuant to the put option is 10 Business Days after the date on which the put option was validly exercised.
Clause 16 of the Deed dealt with the delivery of notices which was expressed to apply unless expressly stated otherwise, and provided that notices are deemed to have been received 3 Business Days after posting.
APN posted an Exercise Notice to MCL on 18 October 2010. MCL received the Exercise Notice on 19 October 2010 and on 20 October 2010 emailed APN confirming receipt. APN took the view that, despite actual receipt of the Exercise Notice on 19 October 2010, the Deed deemed receipt to be 3 Business Days after posting (ie 21 October 2010) and as such, the Completion Date was 10 Business Days after that (ie 5 November 2010) and did not attend for completion until that date. Conversely, MCL took the view that the deeming provision in the Deed did not apply and that the Completion Date was 10 Business Days after actual receipt (ie 3 November 2010), and that because the Deed provided that time was of the essence, APN was too late to require MCL to complete.
The Court of Appeal overturned the trial judge’s decision that APN was out of time for completion on the basis that:
- as clause 5 was silent as to the permissible means of delivery or service, regard had to be had to the notices clause to ascertain that service by post was permitted;
- it was also necessary to look to clause 16 to ascertain the address for service and for changing such address (while the Exercise Notice included an address for MCL, it made no provision for changing that address;
- while clause 5 expressly provides for the form of an Exercise Notice, there is nothing in clause 5 which expressly (or impliedly) provides that the provisions in clause 16 relating to means of delivery or service of a notice do not apply to an Exercise Notice;
- the fact that clause 10 was expressed to apply to notices “given under” it did not prevent reliance on it on the basis that the Exercise Notice was technically given under clause 5 – while the Exercise Notice was authorised by clause 5, it was taken to be delivered and deemed to be received under clause 16;
- clause 5 made clear that valid exercise of the put option depended upon service such that ultimately receipt and not delivery should be the critical event;
- the fact that a particular construction leads to an unreasonable result is a relevant consideration - the Court illustrated this point by querying what should be the position if the recipient refused to confirm receipt until after 10 Business Days after recept? Should it then be entitled to claim that it was then too late for the sender to insist on completion? Alternatively, what if the notice was sent on Day 1 but did not come to the attention of the recipient until Day 11?; and
- as the Deed expressly provided that time be of the essence, the time of receipt of an Exercise Notice and time for completion were intended to be capable of ready, certain and objective ascertainment, such that the elaborate provisions for service and deemed receipt in clause 16 should apply to an Exercise Notice given under clause 5.
See the case.