The New South Wales Court of Appeal in Carbone as Trustee for the S & N Carbone Family Trust v Mills [2019] NSWCA 15 has found that a mistaken belief as to the date on which an option to purchase land lapsed which resulted in the grantee not exercising the option within the specified time was not due to the grantor’s conduct. Accordingly, the grantor was not estopped from relying on the terms of the option agreement.
Background
M had granted the applicants an option to purchase a farm under an option agreement dated 4 September 2012. The applicants had purported to exercise the option on 28 September 2016. They claimed that, under the terms of the option agreement, the option did not lapse until 4 years from the date on which they took possession of the farm, being 4 October 2016, and that they had, therefore, validly exercised the option. M disputed this.
A judge of the Supreme Court of New South Wales found that the applicants’ belief about the date on which the option lapsed was incorrect and that the option lapsed four years after the date of execution of the option agreement, namely, on 4 September 2016. Accordingly, the trial judge found that the purported exercise of the option was ineffective. The trial judge rejected various estoppel claims made by the applicants.
The applicants sought leave to appeal to the Court of Appeal. They did not now dispute that, on a proper construction of the option agreement, the option had lapsed on 4 September 2016, four years after the date of execution of the option agreement, but maintained, as their primary case, that the trial judge should have found that M was estopped from denying that the period for exercise of the option continued until 4 October 2016.
Form of estoppel relied on
The applicants’ case was based on estoppel by representation and estoppel by convention. It was claimed that M represented to them, in conversations both before and after the option agreement was executed and in a document prepared after the option agreement was executed, that the option period would continue until 4 October 2016. The case based on estoppel by convention alleged that the parties proceeded on the basis of a mutual assumption to the same effect (at [72]-[73]).
Court of Appeal
The Court of Appeal (Beazley P, Sackville AJA and Barrett AJA) granted leave to appeal but dismissed the appeal on the basis that the applicants’ mistaken belief that the option would not lapse until four years from the date they took possession of the farm had nothing to do with anything said or done by M.
Sackville AJA (Beazley P and Barrett AJA agreeing) said that the elements necessary to create an estoppel by representation were (at [70]):
- A statement or other conduct that constituted a representation of fact.
- Its communication to the representee.
- The representee’s justifiable belief in its truth and his or her alteration of position in that belief.
- An attempt by the representor to contradict the representation made by him or her.
- Prejudice to the representee as a result of his or her alteration of position if contradiction of the representation were permitted.
His Honour said that the representee did not need to show that the representor’s conduct was the sole or dominant cause of the representee’s altered course of conduct (at [70]).
As for estoppel by convention, his Honour further said, relying on Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14 at [22]; (1986) 160 CLR 226 at 244, that this was a form of estoppel which was founded on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both would be estopped from denying. It had to be shown that the alleged assumption had in fact been adopted by the parties as the conventional basis of their relationship (at [71]).
His Honour then made points to the following effect (at [77]-[101]):
- In a conversation predating the option agreement, M had said nothing about the length of the option period or the date on which it would lapse. Therefore, the misapprehension as to the option period, both before and immediately after the execution of the option agreement, had nothing to do with anything said or done by M prior to the option agreement coming into effect.
- The belief as to the duration of the option period was alleged to be “confirmed” by a conversation which took place several months after the option agreement came into effect but, assuming, contrary to the trial judge’s finding, that the applicants’ account of the conversation was accurate, M had addressed neither the duration of the option period nor the date the option would lapse in that conversation. If the conversation confirmed the applicants’ pre-existing belief as to the date the option would lapse, then it was because there was already a misapprehension that the option period was a fixed period of four years from the date possession of the farm was taken. It was that misapprehension which led to certain words being interpreted as saying something about the date on which the option would lapse. The misapprehension was not induced by any conduct of M. In any event, the trial judge had not accepted the applicants’ account of the conversation that had post-dated the option agreement and there was no sound basis for overturning what were credit-based findings.
- M was not responsible for any confusion on the applicants’ part as to the terms of the option agreement. A self-induced misunderstanding could not provide a basis for estoppel by representation. Nor could it provide a basis for conventional estoppel unless the misunderstanding was shared and acted upon by the other party.
- A document being a payment schedule sent by M in late 2013 did not convey a representation that the option would not lapse until 4 October 2016.
