Send it to the right person: the importance of accurate notices terminating options

In JPA Finance Pty Ltd v Gordon Nominees Pty Ltd,[1] the Supreme Court of Victoria held that a notice purportedly terminating an option to purchase 20 units in a trust for $2.3M was invalid. This was because it was not addressed in accordance with the contract. Instead of being addressed to the company care of its lawyers, it was addressed to one of the lawyers from that firm. This was fatal to the notice, despite the recipient company being in fact well aware of the notice.

Background 

In July 2015, Gordon Nominees Pty Ltd (Gordon) owned all 100 units in a trust. It sold 50 to a company called TLP Nominees Pty Ltd (TLP) for $5.25M and borrowed $2.1M from TLP secured by a charge over another 20 units.

In February 2017, under an agreement between Gordon, TLP and JPA Finance Pty Ltd (JPA), Gordon transferred 20 units in the trust to JPA and the loan to TLP was cancelled. Under a deed between Gordon and JPA (the Option Deed), Gordon obtained a right to repurchase the 20 units for $2.3M, during a period expiring in 2020.

Under the Option Deed, Gordon was required to pay JPA’s legal costs of preparing the deed, and JPA had a right to terminate the deed if an “insolvency event” occurred.

JPA sought legal costs of $26,836.70. Gordon refused to pay, advised it intended to have the costs assessed and paid the disputed amount into its solicitors’ trust account.

JPA served a statutory demand on Gordon in relation to the costs. Gordon ignored the demand, and therefore failed to satisfy it. This failure was an “insolvency event” under the contract.

Subsequently, on the basis that an insolvency event had occurred, JPA sent a notice to Gordon, addressed to a lawyer at Gordon’s solicitors, purporting to terminate the Option Deed (the Notice).

Gordon admitted that it was well aware of the receipt of the Notice by its lawyers and the content of the Notice.

JPA sought a declaration that the Notice validly terminated the Call Option Deed. The Court refused to make the declaration.

Consideration of the Notice

The Court noted that, where a notice triggers an obligation on the part of the recipient to pay money or, as in this case, forfeit valuable property (being the option to repurchase the units), notice requirements must be strictly adhered to. This is in contrast to a notice which merely provides information regarding the contract, where allowance can be made for consideration of the recipient’s knowledge of the contract.

The Court observed that the notice provision in the contract required notices to be addressed to “Gordon Nominees Pty Ltd/ C/- Efron & Associates” at the law firm’s address and to its fax number. The Notice was faxed to the correct number, but was addressed to a lawyer at the firm and did not mention Gordon Nominees or the name of the firm.

Given the requirement for strict adherence, the Court held the Notice was incorrectly addressed, and therefore did not comply with the notice provisions in the contract. As a result, the Court held that the requirements of the contract had not been met, and the Notice had not been validly given. Therefore, the Option Deed had not been terminated and remained on foot.

Key takeaway

Any notice that is a precondition for an obligation to pay or similar liability must be strictly adhered to.