FEDERAL COURT OF AUSTRALIA

Chipper v Octra Nominees Pty Ltd [2006] FCA 1633

LEASE – Lessee granted first right of refusal – When first right of refusal must be offered – Triggering event – Contract for sale with third party – Contract not performed and subsequently varied to purchaser’s advantage – Whether lessee thereby entitled to be offered further right to refuse     

LEASE – Sub-lease in near identical terms – Lessee/sub-lessor not at arm’s length from lessor – First right of refusal to buy freehold contained in sub-lease – Nature of sub-lessor’s obligation to sub-lessee – Whether first right of refusal in lease held on trust for sub-lessee

TRUST – Lease and sub-lease of land both giving first right of refusal to buy freehold – Whether first right of refusal in lease held on trust for sub-lessee

EQUITY – Priority of equitable interests in  land – Interest arising from execution of contract for sale of land – Purchaser on notice of lessee’s first right of refusal in existing lease – Contract varied to purchaser’s advantage – Whether purchaser’s equitable interest superior to interest of lessee in being offered right to refuse

CONTRACT – Lessee of land given first right of refusal to buy freehold – When triggering event occurs – Execution of contract for sale with third party – Whether breach of contract by lessor – Whether lessee thereupon in position of grantee of option

SPECIFIC PERFORMANCE – Contract to give lessee first right of refusal to buy freehold – Lessor in breach by executing contract for sale with third party – Whether lessee in position of grantee of option – Whether lease entitled to call for transfer – Whether lessee’s rights superior to those of third party – Whether lessee ready and willing

Guardianship and Administration Act 1990 (WA)

Bahr v Nicolay [No 2] (1988) 164 CLR 604

Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510

Bircham & Co Nominees (No 2) Ltd v Worrell Holdings Ltd (2001) 82 P & CR 34

Bob Jane T-Marts Pty Ltd v The Baptist Union of Victoria [1999] VSC 346

Goldmaster Homes Pty Ltd v Johnson (2004) 12 BPR 23, 167

Hunt v Luck [1902] 1 Ch 428

Jonns v Kim Seong Tan (1999) 9 BPR 17

Kling v Keston Properties Ltd (1985) 49 P & CR 212

Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57

Mackay v Wilson (1947) 47 SR (NSW) 315

Milmo v Carreras [1946] 1 KB 306

Morland v Hales (1910) 30 NZLR 201

Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762

Pata Nominees Pty Ltd v Durnsford Pty Ltd [1988] WAR 365

Pritchard v Briggs [1980] Ch 338

Ramlal v Chaitlal [2004] 1 P & CR 1

Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491

Sahade v BP Australia Pty Ltd (2004) 12 BPR 22

Speciality Shops Ltd v Yorkshire and Metropolitan Estates Ltd [2003] 2 P & CR 31

Sterns Trading Pty Ltd v Shteinman [1988] NSW ConvR ¶55-414

Tiffany Investments Ltd v Bircham & Co Nominees (No 2) Ltd [2004] 2 P & CR 10

Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107

Tuck v Baker [1990] 2 EGLR 195

Walker Corporation Pty Ltd v W R Tatman Pty Ltd (1990) 20 NSWLR 624

White Property Developments Pty Ltd v Richmond Growth Pty Ltd [1998] FCA 26

Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43

Woodroffe v Box (1954) 92 CLR 245

CHRISTOPHER JOHN CHIPPER AND MELODY JANE CHIPPER v PETER CAMPBELL SMYTH (BY HIS ADMINISTRATORS DAVID ANDREW SMYTH AND ROBERT LANSELL AVERY), RED VALLEY PTY LTD, RIGGINDALE PTY LTD; PETER & ANGELA ROBINSON AS TRUSTEE FOR THE ROBINSON SUPERFUND AND ADINA ENTERPRISES PTY LTD AS TRUSTEE FOR TWO ACRES TRUST; ADINA ENTERPRISES PTY LTD AS TRUSTEE FOR THE TWO ACRES TRUST AND PETER DONALD ROBINSON AND ANGELA ELLEN ROBINSON AS TRUSTEE FOR THE ROBINSON SUPERFUND; RIGGINDALE PTY LTD AND ADINA ENTERPRISES PTY LTD AS TRUSTEE FOR THE TWO ACRES TRUST; P & P HIGGINSON PTY LTD

WAD194 OF 2006

JESSUP J

1 december 2006

MELBOURNE (HEARD IN PERTH)

THE COURT ORDERS THAT:

1.                  On or before 5 December 2006, the applicants file and serve a minute of the orders which they propose to dispose of the proceeding in accordance with the reasons of the court published this day.

2.                  Each respondent have leave to file and serve, on or before 7 December 2006, a minute of the orders (if any) which he or it proposes, in place of or in addition to the orders proposed by the applicants, to dispose of the proceeding in accordance with those reasons.

3.                  If any party desires to make a submission as to costs, he, she or it file and serve a brief statement of the grounds relied on in that behalf, in the case of the applicants on or before 5 December 2006, and in the case of the respondents on or before 7 December 2006.

4.                  The proceeding be listed for the making of orders at 2:15pm (WSDST) on 13 December 2006.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

THE FACTS

1                     The second respondent, Peter Smyth, is the registered proprietor of Glen Oban Farm, located on Mokine Road, York, Western Australia.  The farm comprises approximately 1200 acres, and is contained in five separate certificates of title.  From about 1996, the farm was leased to a family which has no connection with this proceeding, but in early 2002 their lease was coming to an end, and they decided not to renew.  The applicants, Christopher and Melody Chipper, were and are farmers in the area.  By agreement with Peter Smyth and his wife Robin, and with the then lessees of the farm, the Chippers had operated the farm for about the last year of that lease. 

2                     In about March 2002, Christopher Chipper had a number of conversations with Peter and Robin Smyth, in which he told them that he and his wife were interested in taking a lease of the farm.  During one of these conversations, Smyth told Chipper that he would lease the farm for a rent of $25,200 per annum.  There was some discussion about the rent, but Smyth was not prepared to negotiate, and the parties did agree on that rent.  The conversation ended with Smyth saying that he would ask a farm management consultant based in York, Ken Sevenson, to prepare a lease document on his behalf.

3                     On 29 April 2002, Sevenson met with Robin Smyth at his office in York.  Mrs Smyth said that a lease of the farm had been agreed with the Chippers.  She said that her husband, Peter Smyth, was having health issues, and they wanted the lease to be ‘secure’.  She said that she wanted a long lease, and instructed Sevenson to draft a lease of the farm to Chippers.  Sevenson contacted Christopher Chipper, and made an arrangement to inspect the farm.  The inspection took place on 1 May 2002, on which day also Sevenson spoke to the Smyths about the lease, including the proposed term of the lease, an extension to the lease, and a proposed first right of refusal.  On 6 May 2002, Sevenson had a further conversation with Chipper, in which he obtained his, and Melody Chipper’s, details for insertion into the lease agreement.  As a result of these conversations, Sevenson drafted a lease agreement between Peter Smyth of the one part and Christopher and Melody Chipper of the other part.  The agreement was in standard form, and contained a provision for the lessee to have a first right of refusal to buy the freehold.  Sevenson did not keep a copy of that draft lease.

4                     A little later in May 2002, Sevenson spoke to Robin Smyth, who told him that there may be a GST issue with the lease, and suggested that he contact the Smyth family accountant, Mr Hall.  On 24 May 2002, Sevenson did contact Hall, and during the conversation which followed, Hall said that, rather than having a lease between Peter Smyth and the Chippers, the lease should be structured so that there was a lease between Smyth and the first respondent, Octra Nominees Pty Ltd (‘Octra’), and a sub-lease between Octra and the Chippers.  Octra was and is a private company owned by the Smyths, and the trustee of the Peter Smyth Family Trust.  Hall said that the rent payable under the lease between Smyth and Octra would be nominal, and that the rent payable under the sub-lease between Octra and the Chippers would be a commercial rent.  Hall said that this would be tax efficient for the Smyth family.  As a result of that discussion, Sevenson prepared two documents, a lease and a sub-lease as instructed by Hall.

5                     On 5 June 2002, Smyth and Octra executed a lease of the farm at a rent of $100 per annum.  The common seal of Octra was affixed to the lease in the presence of Peter and Robin Smyth.  On the same day, Octra executed a sub-lease of the farm to the Chippers at a rent of $25,200 per annum.  Again, the affixation of the seal was witnessed by Peter and Robin Smyth.  On 24 June 2002, the sub-lease was executed by the Chippers.

6                     By the lease, Peter Smyth leased the farm to Octra for a period of 4 years commencing on 1 May 2002, and granted to Octra an option of a further 4-year term commencing on 1 May 2006.  Clause 6(d)(ii) of the lease provided as follows:

If at any time during the lease period (which is inclusive of the optional lease period, if one is written into in this lease agreement), the Lessor wishes to sell the freehold of the Property subject to this lease agreement, the Lessor must first give notice of the intention to sell the Property to the Lessee one month prior to advertising the Property for sale.  Prospective purchasers of the Property will be able to inspect the Property if the Lessor gives the Lessee notice.  The Lessee will have the first right of refusal to purchase the land for the same consideration and conditions as the Property is offered for sale to any other proposed purchaser.

By the sub-lease, Octra leased the farm to the Chippers for a period of 4 years commencing on 1 May 2002, and granted to the Chippers an option of a further 4-year term commencing on 1 May 2006.  Clause 6(d)(ii) of the sub-lease provided as follows:

If at any time during the Sub-Lease period (which is inclusive of the optional Sub-Lease period, if one is written into in this Sub-Lease agreement), the Sub-Lessor wishes to sell the freehold of the Property subject to this Sub-Lease agreement, the Sub-Lessor must first give notice of the intention to sell the Property to the Sub-Lessee one month prior to advertising the Property for sale.  Prospective purchasers of the Property will be able to inspect the Property if the Sub-Lessor gives the Sub-Lessee notice.  The Sub-Lessee will have the first right of refusal to purchase the land for the same consideration and conditions as the Property is offered for sale to any other proposed purchaser.

7                     The Chippers occupied the farm, and little which is presently relevant occurred for more than 2 years.  The one event in that period which is relevant was that, as a result of Peter Smyth’s infirmity, his affairs were placed under the joint administration of his son David Smyth and one Robert Avery by order dated 6 May 2003 under the Guardianship and Administration Act 1990 (WA).  From that time forward, and for the purposes of all subsequent relevant events, it was David Smyth who effectively represented, and made decisions for, his father, although Avery’s participation was necessary for any act of Peter Smyth to have legal effect.  I should add that, notwithstanding his infirmity, it appeared that Peter Smyth remained conscious of the events which later became relevant in this proceeding, and that David Smyth made important decisions on his behalf only after discussion with him.

8                     In late 2004, Peter Smyth decided to put the farm up for sale.  Once he learnt of his father’s intentions in this regard, David Smyth effectively took over responsibility for the arrangement of the sale.  On 17 November 2004, he and Avery appointed agents for the sale, Elders Real Estate of York.  The sale was handled by their Branch Manager, Brian Woolcock.  Thereafter, the Smyths dealt with the Chippers as though the latter had a first right of refusal to buy the freehold.  That is to say, they dealt with the Chippers in exactly the same way as would have been appropriate if the farm were leased directly to the Chippers, without the interposition of Octra.

9                     On 8 November 2004, David Smyth informed Christopher Chipper of the intended sale of the farm.  On 23 December 2004, Smyth confirmed that in writing, and told Chipper that the price being sought by the vendor was $1,450,000, or about $1,200 per acre.  The Chippers regarded that price as excessive.  In February 2005, they signed an open offer to purchase the farm for the price of $1,100,000.  This was rejected by David Smyth, who countered with a price of $1,445,000.  The Chippers increased their offer to $1,200,000, but Smyth would not move from the price he last nominated.  In all of the discussions involving the Chippers and Smyth (or Woolcock on behalf of Smyth) at about this time, the Chippers had left him (and Woolcock) in no doubt but that they considered that the asking price of $1,445,000 was excessive. 

10                  Nothing presently material happened in relation to the proposed sale of the farm between about February and about August 2005.  During that time, the farm continued to be listed with Elders. It was in August that the third respondent, Red Valley Pty Ltd (‘Red Valley’) came into the picture.  Red Valley was (and is) a company controlled by Warren Anderson, and of which he and his wife were directors.  Anderson had been a farmer and a property developer for many years although, since the early 1990’s, not actively involved in the latter.  It seems that Red Valley was used by Anderson to own properties in which he was interested.  Anderson gave evidence that, in about early 2005, a farming property near York owned by Red Valley was given to his sister.  However, he was concerned that that property might be too small to support her, her husband and their three sons.  Anderson was looking for a further property which his sister could use as pasture, and possibly for one of her sons to use as his own farm.  He asked one Colin King, a friend, and an estate agent with L J Hooker of York, to look out for properties close to the one which Red Valley had given to his sister.  In August, King (who did not give evidence) told Anderson that Elders had advertised the farm, that it was reasonably priced and was ‘just what you’re after’. Anderson was interested, and asked King to arrange an inspection.  King contacted Woolcock, and an inspection was arranged. 

11                  Woolcock gave evidence that, during the inspection, he told Anderson that the farm was under lease, and that there was a further 4-year option, and that the lessee had the first right of refusal.  He said that Anderson said that he would have preferred to have had access to the property at the end of the first term (30 April 2006), but that that was not vital.  For his part, Anderson said that, at or about the time of the inspection, King said to him:

Warren, there’s a problem.  Smyth, the owner, has leased the farm to Mr and Mrs Chipper until April next year and they have an option for another four years.  But I think they will surrender the lease if you pay them a reasonable amount.  They’re not running much of a farm and can’t be making much money out of it.  They might accept a buy-out of the lease but it won’t cost much.  If they’re not sensible about it, I can always get you out of the property.  It’s on 6 titles and I can sell the separate lots to Investors from Perth who are after a country property which they might use as a hobby farm in the future.

Anderson was given a copy of the lease and of the sub-lease, but did not read them at that stage. 

12                  In anticipation of an offer to buy the farm being made by Red Valley, on 27 August 2005 David Smyth told Christopher Chipper that he expected such an offer to be made, and asked him to indicate if he was interested in purchasing the farm.

13                  On 29 August 2005 Red Valley offered to buy the farm for a price of $1,400,000, and subject to various conditions set out in the offer.  On 2 September 2005, David Smyth countered with an offer to sell for $1,445,000, together with certain adjustments to the conditions originally proposed.  Red Valley agreed to pay the higher price, but rejected one of the adjustments to the conditions.  On 16 September 2005, David Smyth accepted the most recent amendments proposed by Red Valley and signed the contract, and on 19 September 2006 Avery too signed.

14                  As a result of those signatures, on 19 September 2005 there came into existence a contract for the sale of the farm to Red Valley.  Apart from the agreed price of $1,445,000, some of the conditions in the contract are presently material.  The contract provided for a deposit of $140,000, of which $10,000 was payable immediately and the balance, $130,000, was payable within 60 days.  Settlement was to be 12 months from acceptance (ie 19 September 2006).  In addition to the conditions printed on the standard form, the contract contained the following conditions:

10.       This offer is subject to the vendor completing the subdivision application 120216 creating 6 locations as shown on Annexure ‘A’ attached to this contract and this shall be completed prior to settlement.

11.              The purchaser is aware and accepts the current lease arrangements on the said property.

12.              See Annexure ‘B’

13.              See Special Conditions Addendum

14.              See Annexure ‘C’

15.              This contract is subject to and conditional upon the purchaser being satisfied with the terms & conditions of the existing lease.  Such satisfaction or otherwise to be confirmed in writing to the vendor or his agent within 28 days of acceptance of this contract.

I should say something about these conditions.  As to condition 10, at the start of these reasons, I indicated that the farm was on five separate certificates of title.  There was, apparently, a proposal to create a sixth, but, at the time of trial before me, this had not been completed, and the farm remains on five titles.  As to condition 11, I have noted above that, by the time of the execution of the contract, Anderson had received a copy of each of the lease and of the sub-lease.  At the time he executed the contract, he had not had an opportunity to consider the lease and the sub-lease, and King suggested to him that it become a condition of the offer to buy the farm that Red Valley be satisfied with the terms and conditions of the existing lease.  Anderson agreed with the suggestion, King drafted condition 15, and that was accepted by David Smyth.  As to conditions 12, 13 and 14, they are presently relevant only for the fact that they existed as annexures (or the like) to the written contract.  Why they are relevant will appear presently.

15                  In the period immediately following the execution of the contract, it would appear, Anderson used King to speak to the Chippers on the question whether they would be prepared to be bought out of the sub-lease, including the optional term.  King told him that the Chippers had named the price of $50,000 a year, down to the end of the optional term, to be bought out.  Anderson was not prepared to consider paying such a sum.

16                  Towards the end of September 2005, Anderson read the lease and the sub-lease for the first time.  He noted the clauses giving the Chippers a first right of refusal, and was unsure whether that affected the contract which Red Valley had signed.  He told King to make sure that Peter Smyth offered the farm to the Chippers, adding ‘I don’t want this to become bogged down in another court fight’.  King said that he would speak to Woolcock about the matter.  The first instalment of the deposit under the contract, $10,000, which was due upon execution, had not been paid.

17                  As I have indicated above, the Chippers were informed of the proposed sale of the farm to Red Valley, but they did not then take any step to buy the farm under their first right of refusal.  Whether or not because of representations made by King as a result of Anderson’s concerns, the fact is that Woolcock provided the Chippers with a blank pro-forma confirmation by which they were invited to indicate that they did wish, or did not wish, to exercise their first right of refusal to purchase the farm at the cash price of $1,445,000.  By this stage, the only details of the Red Valley contract which had been provided to the Chippers consisted of the first page of that contract (which included the price and the deposit terms, but not the special conditions). On 28 September 2005, Melody Chipper’s brother, Christopher Stevenson (a legal practioner), wrote to Woolcock advising that there had not been proper compliance with the lessor’s obligation to give the Chippers a first right of refusal.  He requested Woolcock to provide the Chippers with ‘proper documentation for their consideration’.  This was apparently not promptly forthcoming, at least to the Chippers’ satisfaction.

18                  The 28-day period within which, under condition 15 of the contract, Red Valley had the opportunity to withdraw if it was not satisfied with the terms and conditions of the existing lease expired on 17 October 2005.  As this date was approaching, and Anderson still had not resolved his concerns about the lease, he asked King to obtain an extension of time for the operation of condition 15.  King spoke to Woolcock about the matter, and on 17 October 2005 Woolcock prepared a written form of variation to the contract which would have done two things: first, extend the period referred to in condition 15 to 15 December 2005, and secondly, provide for the deposit to be paid in full within 7 days of that condition being satisfied (ie, by 22 December 2005 at the latest). 

19                  Two days later, on 19 October 2005, David Smyth telephoned Christopher Chipper.  He asked why the Chippers had not signed the form indicating that they did not wish to buy the farm at the price of $1,445,000.  He said that their failure to do so was delaying the sale.  Chipper said that he had still not been shown the whole contract, which he required before exercising his first right of refusal one way or the other.  On 20 October 2005, Woolcock visited the Chippers’ farm, and spoke to Melody Chipper.  He gave her a memorandum addressed to the Chippers and signed by Peter Smyth, in the following terms:

We thank you for your attention to this matter, and the other matters in terms of the sale of the farm.

The Owner Peter Smyth of the above farming property, of which you are the current Sublessee, wishes to advise that further to earlier advice to you that the property is for sale, he has now received a cash offer to purchase the entire farming property at the full listed price of $1,445,000.00.

Thus in accordance with Clause 6 item d(ii) of your lease, he is extending to you the first right of refusal to purchase the property on the same terms, for the same cash consideration.  A copy of the terms are attached for your information.

We note the purchaser has received a copy of the lease agreement.

As per your discussion with David Smyth please confirm your intention not to purchase the property, (or purchase) by signing the copy of this letter and sending to us by return by 27/10/05.  If we do not receive a reply by this date we will assume you do not wish to exercise your right.

The memorandum concluded with a prepared statement, to be signed by the Chippers, to the effect that they did not wish to exercise their first right of refusal to buy the farm for the cash price of $1,445,000.   They did not sign that statement.

20                  It seems that, by the end of October 2005, the Chippers had been provided with a copy of the Red Valley contract, but not with the annexures, or the addendum, referred to in conditions 12, 13 and 14.  On their behalf, on 7 November 2005, Stevenson wrote to Woolcock protesting about those omissions.  Woolcock immediately brought the complete contract, including the annexures and the addendum, to the Chippers’ attention.  Having perused these documents, the Chippers decided that they did not wish to purchase the farm for the consideration, and on the conditions, specified in the Red Valley contract.  On 16 November 2005, Melody Chipper delivered a notice, signed by herself and her husband the previous day, to Woolcock, in the following terms:

Christopher John Chipper and Melody Jane Chipper of Jimbin Farm, Mokine Road, York hereby give notice to Octra Nominees Pty Ltd of 2 Avon Place, Northam that they do not wish to exercise their right of first refusal to purchase the farming property the subject of the sub-lease agreement dated 1 May 2002 (“the Sub-lease”) on the basis that the farming land the subject of the agreement is purchased, and only purchased, by Red Valley Pty Ltd (“the Purchaser”) on the terms and conditions set out its offer and acceptance dated 2 September 2005 (“the Offer and Acceptance”).

And further take notice that Christopher John Chipper and Melody Jane Chipper have relied upon the representations made to them by David Smyth and Brian Woolcock at various times that the Purchaser is aware of the Sub-lease and agrees to be bound by the terms and conditions of the Sub-lease and that the farming property will only be sold to the Purchaser on the terms and conditions set out in the Offer and Acceptance.

Woolcock notified King, and King notified Anderson, of this communication. 

21                  The variation to the contract between Peter Smyth and Red Valley which had been prepared by Woolcock, at King’s request, on 17 October 2005, was executed by both parties in the days following the delivery of the Chippers’ notice referred to in the previous paragraph.  It was executed by Anderson on behalf of Red Valley on 17 November, and by David Smyth (and, it appears, Avery) on behalf of Peter Smyth on 22 November 2005.  It bore the date 17 October 2005.

22                  There is a question whether the Chippers knew of the proposed extension under condition 15 of the contract before they signed off on their first right of refusal on 16 November 2005.  In his witness statement, David Smyth said that he told Christopher Chipper (in a phone conversation on 7 November 2005) that Red Valley wanted an extension on the time for the lease review.  Chipper denied being told any such thing, and was not cross-examined on that denial.  Smyth’s recollection of the timing and length of this conversation was assisted by his later referral to his mobile phone accounts.  His actual recall of the order and detail of events at about this time was not good, and in a number of respects I was left with the impression that his evidence involved a reconstruction of events in a form now perceived to be favourable to his father’s case.  I am not prepared to find that Smyth informed Chipper of Red Valley’s request for an extension of time allowed under condition 15 of the contract.  I should add that the other, possibly more significant, element of the variation proposed by Red Valley at about this time was the extension of the time for the payment of the deposit under the contract, and there is no suggestion, even by Smyth, that the Chippers were told about that at any time before they signed off on their first right of refusal.

23                  In December 2005, Anderson travelled overseas.  While in Moscow, he received a phone call from King, who told him that the time on the condition in the contract of sale was about to expire, and asked him what he was going to do about it.  This was a reference to the fact that the time for Red Valley to express its satisfaction (or otherwise) under condition 15 had been extended to 15 December 2005.  Anderson asked King whether the Chippers were going to accept ‘a sensible offer on their lease’, by which he referred to earlier proposals for Red Valley to buy the Chippers out from the remaining term of the lease, including the extended term.  King said that he had heard nothing from the Chippers, adding: ‘if you buy it I can on-sale the blocks for a profit.  And you never know, Chipper might still come to the party.’  Anderson said, ‘put it in motion’, and left it up to King. 

24                  Woolcock too was concerned that 15 December was approaching.  Apparently after contact with King and at King’s request, on 12 December 2005 he drafted a further variation to the contract to the effect that a first instalment of the deposit,  $90,000, would be paid within 7 days, and the balance, $50,000, would be paid on 31 March 2006.  At the same time as he prepared that draft variation, Woolcock also prepared, in draft, a waiver of condition 15, to be signed on behalf of Red Valley.  However, King was unable to have Anderson execute this variation and the waiver in December 2005.  As I have mentioned, Anderson was overseas until shortly before Christmas, but it seems that, even on his return, King was unable to contact him.  Eventually, King advised Woolcock to contact Anderson directly.  On 30 December 2005 Woolcock prepared a 3-page facsimile which was addressed to Anderson.  The cover sheet contained the following memorandum:

Warren please find copies of variation and waiver forms for your signing.  Also deposit of $90,000 is payable to Elders Trust account and post it to our office at Box 178 York.  Thanks.

The second page of the facsimile was the draft variation which Woolcock had prepared on 12 December 2005, and the third page was the draft waiver.  The facsimile was sent to Anderson at about the end of December 2005.  However, Woolcock had no greater success prompting Anderson to execute the variation, and the waiver, than had King.  As it appeared to Woolcock, Anderson was simply unavailable.

25                  As I have mentioned, in December 2005 Anderson still held on to the prospect that the Chippers might agree to be bought out of the remaining term of their lease.  That he was, in his words, ‘still attempting to sort out the lease’, was a reason why he requested that there be a split in the deposit.  He said that he was not going to commit himself for anything until ‘any arrangements had been made about the lease’, and that ‘I didn’t decide to proceed.’  From this point, his evidence (in cross-examination) proceeded as follows:

And you were deciding throughout that period from December up until 22 February 2006 whether or not you would proceed?‑‑‑Well, the whole - the whole situation was in limbo, because there was so many ifs and buts about the contract and about the lease and it was a over a period - the Christmas period and I didn't just apply myself to it.

But can I just get a short answer to my question, you were deciding whether or not to proceed over that period?‑‑‑Yes, you could say that.

And it wasn't until 22 February, when you signed the document which appears at 248, exhibit R, that you did decide to proceed?‑‑‑That's correct.

And that was subject to, turnover please to 249, to having seven days to complete your due diligence with regard to the lease term?‑‑‑Yes, that's correct.

So you didn't finally commit until 1 March, when you served the notice which waived that term?‑‑‑That's correct, yes.

I do not accept Anderson’s evidence that the reason he did nothing about the variation and waiver proposed in December 2005 was simply that he did not apply himself.  From about the first half of December until at least the beginning of February, Anderson’s failure to respond to Woolcock was no accident.  His original idea of buying the farm as an additional resource for his sister was being frustrated by the Chippers’ refusal to consider being bought out of the lease, and the extended term, on Anderson’s terms.  From the outset, King had proposed, as a fall-back position, the sale of individual lots to third parties.  Unless Anderson could achieve either his preferred position, or King’s fall-back position, the purchase of the farm would have been pointless.  I consider that Anderson’s conscious objective at around this time was to avoid committing Red Valley to the purchase until one of those positions had been achieved.

26                  I would reject any suggestion that Red Valley’s failure to pay the deposit, and its failure to come to terms with the variation and waiver which had been drafted by Woolcock, was due to absent-mindedness, preoccupation or even incompetence.  I find that these failures were the result of decisions consciously taken by Anderson on Red Valley’s behalf. 

27                  In early February 2006, certain events occurred which, it seems, renewed Red Valley’s interest in executing the variation and waiver prepared by Woolcock in December 2005.  At the time, Woolcock knew nothing of these developments.  On 4 February 2006 King received a written offer for so much of the farm as was contained on one of the certificates of title, Lot 99, from two of the fourth respondents, Riggindale Pty Ltd and Adina Enterprises Pty Ltd (as trustee for the Two-Acre Trust).  On the same day, he received a written offer for Lot 97 from Riggindale Pty Ltd.  The receipt of these offers caused Anderson to decide that he would proceed with the purchase of the farm.  Immediately following the series of questions and answers in cross-examination to which I have referred in par 25 above, the following exchange occurred:

Now, the thing that caused you to commit was the fact that Mr King had told you that he had managed to on sale two or three blocks of Glen Oban Farm, wasn't it?‑‑‑Yes, that's correct.

28                   King contacted Woolcock (which contact was made, I infer, on the instructions of Anderson) with a view to arranging for the execution of the variation and waiver. The variation (as amended at King’s initiative) was executed by Anderson on 22 February 2006, by David Smyth on 28 February 2006, and by Avery on 1 March 2006.  It contained the following term:

The vendor agrees to the deposit of $140,000 being paid in two instalments being $90,000 within 7 days of this request and the balance of $50,000 to be paid on 31 May 2006.

On 22 February 2006 Anderson, on behalf of Red Valley, signed a form of waiver in the following terms:

The purchaser requires 7 days from the signing of this waiver form to complete his due diligence with regard to the lease term and should he be satisfied with this this clause shall be waived.

On 1 March 2006, Anderson notified Woolcock in writing that he was satisfied with his inquiries regarding the lease as shown in cl 15 of the contract, thereby waiving that condition.  Red Valley paid the first deposit instalment on 9 March 2006.

29                  The events to which I have referred involving Red Valley and the non-performance of its contract with Peter Smyth were originally unknown to the Chippers.  In January 2006, Christopher Chipper happened upon Woolcock in the street in York, and asked him if the contract with Red Valley had been finalised.  Woolcock said that the deposit was ‘in the mail’, that Anderson was in Russia and that that was holding things up.  Chipper said that people were driving over the farm, and that he assumed that they were considering a purchase from Red Valley.  He told Woolcock that that had to stop, but Woolcock said that it was not his problem.  Also in January 2006, or possibly in early February, and possibly also as a result of his conversation with Woolcock to which I have just referred, Chipper spoke to David Smyth about the purchase of the farm by Red Valley.  This was in the course of a conversation otherwise concerned with the negotiation of the rent for the 4-year extension of the sub-lease.  Smyth told Chipper that he was still waiting on Red Valley ‘to finish on concluding the deal’. According to Melody Chipper, ‘in or about February 2006’ she asked Woolcock whether Red Valley had paid the deposit under the contract, and Woolcock said that the deposit had not been paid because Anderson was overseas.  According to Mrs Chipper, she told Woolcock that she considered that, if the deposit had not been paid, ‘there had to be a different contract’.  Mr Woolcock disagreed with that, and said that the Red Valley contract had been ‘finalised’. 

30                  It would seem that, at about this time, the Chippers were reconsidering their original refusal to pay $1,445,000 for the freehold of the farm. According to Christopher Chipper, having found out that Red Valley had not paid the deposit under the contract, he ‘presumed the contract was void’.  He discussed the position with his wife, and they decided to make an offer to purchase the farm for the sum of $1,445,000, and otherwise on the same terms as contained in the Red Valley contract (as then known to them).  He said that he called David Smyth on his mobile phone, and left a message for Smyth to call him back.  Chipper said that a couple of days later, Smyth telephoned him.  He said that he asked Smyth whether Red Valley had paid the deposit, and was told that it had not.  He said that he and his wife could purchase the farm for the price being offered by Red Valley, and that Smyth responded that he did not care who bought the farm – he just wanted it sold. 

31                  Smyth, for his part, gave evidence that it was not until 12 March 2006 that Chipper first told him that his circumstances had changed and that he could then afford to purchase the farm.  According to Smyth, Chipper referred to the new (higher) rental which they would be paying under the extended sub-lease, and said they might as well buy the farm if it was still available.  Smyth said that he would need to check with Elders to see if the deposit had in fact been paid.  He said that, on 13 March 2006, he rang Woolcock, and was told that Red Valley had paid the first instalment of the deposit, $90,000, by the due date.  He said that he then rang the Chippers, and spoke to Melody Chipper.  He told her that the farm had been sold.  According to Smyth, Mrs Chipper said that she and her husband were aware of the variation to the Red Valley contract, and of the fact that the deposit had not been paid.  According to Smyth, he told Melody Chipper that ‘it was the original contract to Red Valley … it was the same price … and the same people’.

32                  In the meantime, King was continuing his efforts to sell the lots constituting the farm to third parties.  As I have mentioned, he received offers for two of those lots in the first week of February 2006.  On 17 March 2006 a written offer for Lot 203 was made by Peter and Angela Robinson, trustees for the Robinson Superannuation Fund, and Adina Enterprises Pty Ltd, trustee for the Two-Acre Trust.  On 21 March 2006, a written offer for Lot 202 was made by Garden Valley Pty Ltd.  The four offers were all accepted by Red Valley on 21 March 2006.  Each contract thus coming into existence was subject to settlement with Peter Smyth.  In each case there was an acknowledgement by the purchaser that settlement would be without vacant possession because of ‘a long term lease’ and that the purchaser had previously received a copy of each of the lease and the sub-lease. 

33                  In late March 2006, Melody Chipper asked Woolcock for a copy of the then current contract of sale between Peter Smyth and Red Valley.  She did not receive the contract, and again asked Woolcock for a copy of it in early April 2006.  She visited Woolcock in his office in York on 10 April 2006, and was provided with a copy of the contract, together with a copy of the variation (but not of the waiver) executed on 1 March 2006. 

34                  The Chippers consulted Stevenson about these developments.  On 16 April 2006, he spoke to David Smyth.  He said that he had been informed about the variation to the contract and, according to Smyth, ‘wanted to sort it out’.  Smyth said that he told Stevenson that he had been more than happy to sell the farm to the Chippers, but they had declined to purchase it.  He said that Stevenson replied that he had told the Chippers to pay the full amount for the farm, but that they had not wanted to do so.

35                  Over the ensuing five weeks or thereabouts, it seems that the Chippers were taking legal advice.  On 5 May 2006, they lodged a caveat over the farm to protect what was said to be an ‘option to purchase and/or right of first refusal pursuant to lease agreement dated May 1 2002’.  On 26 May 2006, the Chippers’ solicitors wrote to Octra, with a copy to Peter Smyth, referring to the variation to the contract with Red Valley which had recently come to their clients’ attention.  They asserted that, in relation to the deposit, the contract had been renegotiated and was now ‘substantially more favourable to the purchaser’.  They said that the Chippers wished to exercise the ‘right of pre-emption over the freehold of the property’ on the terms of the contract, as varied.  They sought an acknowledgement of the Chippers’ right to purchase the freehold on the terms of the contract as varied, and asked that Red Valley be informed thereof.  The solicitors added that they were preparing a form of contract for the purchase of the property, which would shortly be sent, together with the Chippers’ cheque for the deposit of $140,000.  A similar letter was sent to Red Valley.

36                  On 30 May 2006, the Chippers’ solicitors again wrote to Octra, enclosing a copy of a form of contract for the sale of land executed by the Chippers as purchasers, together with a trust account cheque in the sum of $140,000.  The form of contract purported to be on the same terms and conditions as the contract made between Peter Smyth and Red Valley in September 2005 as amended on 1 March 2006, save that the deposit of $140,000 was payable forthwith.  The form of contract also contained a waiver of condition 15 in the original contract. 

37                  On 13 July 2006 the Chippers commenced the present proceeding against Octra, Peter Smyth and Red Valley.

38                  On 10 August 2006, the Chippers’ bank, National Australia Bank Ltd, advised them in writing that they had unconditional approval for a $1.3 m finance package for the funding of the purchase of the farm, subject to their execution of the bank’s standard security and loan documentation.

The claims and the defences

39                  In their Statement of Claim (as amended to the date of the trial) the Chippers allege that it was an implied term of the sub-lease that Octra would do all things necessary to ensure that the Chippers had a first right of refusal to purchase the freehold of the farm for the same consideration and on the same conditions as that freehold was offered to any other proposed purchaser; to ensure that, if they exercised their first right of refusal under the sub-lease, Octra would exercise its own first right of refusal under the lease, with the result, ultimately, that the freehold would be transferred to the Chippers; and, if the first right of refusal under the lease were triggered, to exercise that right if requested to do so by the Chippers.  They allege, both additionally and in the alternative, that, on a proper construction of the sub-lease, Octra was obliged to do all things reasonably necessary on its part to enable them to have the benefit of the first right of refusal in the lease.  This last allegation is admitted by Peter Smyth, Octra and Red Valley: indeed, each of them asserts that such is the effect of the sub-lease.  Otherwise, the thrust of the Chippers’ allegations to which I have referred in this paragraph is denied by those respondents.  Additionally, Smyth and Octra allege in their Defence that the effect of the sub-lease was to assign to the Chippers the whole of Octra’s proprietary interest arising under the lease, such that Octra was left with its contractual rights and obligations only, including those relating to its, and the Chippers’, first rights of refusal.

40                  The Chippers allege that Octra held the benefit of the first right of refusal under the lease on trust for them.  That is denied by Smyth, Octra and Red Valley.

41                  The Chippers refer to the contract of sale of the farm to Red Valley made in September 2005, but do not allege that that event, of itself, triggered the operation of their first right of refusal.  Rather, they focus upon the amendments to that contract made on 1 March 2006.  They say that, by those amendments, Peter Smyth agreed to vary the contract such that the deposit was payable in two instalments, $90,000 due on 1 March 2006 (it was in fact due within 7 days of that date) and $50,000 due on 31 May 2006, and such that there was a relaxation of the time specified in condition 15 within which Red Valley was obliged to indicate its satisfaction, or otherwise, with the terms of the lease.  They allege that, upon becoming aware of the variation, they exercised their first right of refusal (on 26 May 2006) to the effect of indicating a desire to buy the freehold of the farm.  Peter Smyth and Octra admit the factual circumstances alleged with respect to the variation of 1 March 2006, but deny that they were, or that either of them was, obliged to notify the Chippers thereof because, they allege, Smyth had previously offered to sell the farm to the Chippers for the same consideration, and on ‘materially’ the same conditions, as the farm was offered to Red Valley, because the variation was not a ‘material’ variation to those conditions, and because the variation was made in good faith, and Red Valley remained obliged to purchase the farm on reasonable and ‘appropriately adapted’ conditions.  By way of reply, the Chippers admit that, on 22 October and 8 November 2005, Peter Smyth offered to sell the farm to them on the same terms and conditions, and for the same cash consideration, as the farm was then offered for sale to Red Valley.  They join issue on the contention that the circumstances of the variation of 1 March 2006 were not such as to trigger their first right of refusal, and they allege that Smyth and Octra did not disclose, but rather endeavoured to conceal, the terms of that variation.  Red Valley admits the making of the contract in September 2005, but alleges that, prior to that contract being entered into, the Chippers were offered the farm on the same terms as were then offered by it itself.  Red Valley admits the fact of the variation of 1 March 2006, but contends that, as at 26 May 2006, the Chippers had no right to acquire the farm on the terms set out in the contract between Peter Smyth and Red Valley as varied.

42                  The Chippers allege that, in breach of the implied terms of the sub-lease to which I have referred, Octra did not do all things necessary to ensure that they had the benefit of the first right of refusal over the freehold, did not exercise that right, and did not respond to their request to acknowledge their entitlement to a transfer of the freehold on the terms being offered to Red Valley as varied.  They allege that Octra’s failure to exercise the first right of refusal constituted a breach of trust.  They allege that Octra did not do all things reasonably necessary on its part to enable them to have the benefit of the first right of refusal.  These allegations are denied by Peter Smyth, Octra and Red Valley.  However, there is no suggestion that Octra took any step of the kind referred to in these allegations either after the variation of 1 May 2006, or in response to the Chippers’ solicitors’ correspondence of 26 and 30 May 2006.   I take it that the denials refer not so much to the primary facts embodied in the Chippers’ allegations as to the proposition that, for Octra to have failed to act as alleged, constituted a breach of contract and a breach of trust.

43                  The Chippers allege that they are, and at material times were, ready, willing and able to perform their obligations under the sub-lease, and under the terms of the contract between Peter Smyth and Red Valley as varied, in so far as it imposed obligations on the purchaser.  They say that they are entitled to an order requiring Octra to exercise the first right of refusal under the lease, and to transfer the freehold of the farm to them.  These allegations are denied by Peter Smyth, Octra and Red Valley.  As the case was conducted at trial, a significant question was whether the Chippers were ready, willing and able to perform the purchasers’ obligations under the contract of sale.

44                  The Chippers allege that, after the making of the variation on 1 March 2006, Red Valley purported to make contracts to sell portions of the farm to other parties (the fourth respondents).  They say that each of those on-contracts is conditional on the settlement of the Red Valley contract as varied, and is subject to the lease, and to their own right to continue possession under the sub-lease.  Red Valley admits that it has contracted to sell each of the five lots registered under its own certificate of title and which together constitute the farm, but otherwise denies these allegations.

45                  The Chippers next allege that they exercised the option to renew the sub-lease for a further term of 4 years.  Both Octra and Red Valley admit that allegation, and accept that the Chippers are entitled to a declaration that they are entitled to a further sub-lease of the farm for the extended 4-year term under the existing sub-lease.

46                  In their Application as amended, the Chippers seek declarations that they are entitled to a transfer of the freehold of the farm on the terms of the contract between Peter Smyth and Red Valley as varied on 1 March 2006 and that they are entitled to an extension of their sub-lease.  They seek orders requiring Smyth, alternatively Octra, to transfer the freehold of the farm to them on the terms of that contract as so varied.  They seek damages for breach of contract.  They seek a declaration that their entitlement to a transfer of the freehold of the farm takes priority over the rights of Red Valley and of the fourth respondents.  They also seek various other remedies which, for reasons which I need not relate, have now become irrelevant.

47                  Red Valley contends in its Defence that, as purchaser of an estate in fee simple of the farm, it has acquired an equitable proprietary interest in the farm in priority to any interest held by the Chippers, or which is superior to, and has extinguished, the Chippers’ interest in the farm.  In reply to that allegation, the Chippers say that Red Valley has not purchased an estate in fee simple in the farm; that, at the latest immediately before the contract between Peter Smyth and Red Valley was made in September 2005, Octra and/or the Chippers (by virtue of their respective first rights of refusal) acquired an equitable interest in the freehold of the farm; that the contract between Smyth and Red Valley was subject to the terms of the lease and the sub-lease, including the first rights of refusal; that Red Valley was aware of the first rights of refusal held by Octra and the Chippers; that they were not informed of all of the terms of the contract between Smyth and Red Valley prior to 8 November 2005; that their notice dated 15 November 2005 waived their right to acquire the freehold in the farm only in respect of the offer then made by Red Valley, and not otherwise; that the offer involved in the variation completed on 1 March 2006 was not made known to them; that that offer gave rise to an equitable interest in the freehold on the part of Octra and/or the Chippers themselves, as purchasers of the freehold under the terms of a conditional contract; that that offer terminated or modified the equitable interest which Red Valley may have had and, to the extent that it created a new equitable interest, did so not earlier than 1 March 2006; that Red Valley had at least constructive notice of all of the Chippers’ rights to, or in respect of, the farm; and that it was not until 10 April 2006 that they became aware of all of the terms of the variation to the contract effected on 1 March 2006.  The Chippers say that, to the extent that Red Valley had an equitable interest in the freehold of the farm, it was subject to the first right of refusal in each of the lease and the sub-lease, and that it would be unconscionable for Red Valley now to contend that its contract with Peter Smyth was not subject to the first right of refusal or took priority as against the Chippers’ interest.

48                  Red Valley cross claims for the removal of the caveat, and for a declaration that the Chippers do not have an interest in the farm such as would enable them to prevent Red Valley being registered as proprietor, or conveying its interest to any other person.  It alleges that the Chippers do not have an interest in the farm arising from their first right of refusal, or that any interest which they do have ranks behind that of Red Valley.  In their Defence to the Cross Claim, the Chippers admit that Red Valley has an equitable interest in the farm, but say, relying on their Statement of Claim and Reply, that that interest does not have priority over their own.

49                  On 4 August 2006, the first four of the fourth respondents were added as parties.  On 16 August 2006, the fifth of the fourth respondents was so added.  Their interests stand to be affected by the Chippers’ claims, but no relief is sought against them specifically.  As it happened, they did not appear at the trial.

50                  Originally, the Chippers alleged that the execution of the sub-lease by Octra constituted a representation that it would and could cause the transfer of the farm to the Chippers if they exercised their first right of refusal and that the first right of refusal  in the sub-lease was valid and effective to ensure that the Chippers had the right to purchase the farm for the same consideration and on the same conditions as the farm was offered to another proposed purchaser; that those representations were made in trade or commerce and were as to future matters; and that the representations were likely to mislead or deceive, in contravention of s 52 of the Trade Practices Act 1974 (Cth).  As the case developed, however, the Chippers did not consider it necessary to persist with those allegations, and the case proceeded without further reference to the Trade Practices Act.

the trust claim

51                  I consider first the Chippers’ allegation that Octra held the benefit of its first right of refusal under the lease on trust for them.  The promise in question was contained in the lease, and it is to the intentions of the parties to that document that one must turn.  In doing so, however, I should be aware of all the circumstances which existed at the time, including the terms of the sub-lease, which was a contemporaneous document manifestly intended to mirror the substantial terms of the lease.

52                  All relevant parties agree that the express terms of cl 6(d)(ii) of the sub-lease give rise to an implication as between the Chippers and Octra that Octra was obliged to do all things reasonably necessary on its part to enable them to have the benefit of the first right of refusal contained in cl 6(d)(ii) of the lease.  The Chippers, however, go further and contend that Octra held the benefit of cl 6(d)(ii) of the lease on trust for them.  They characterise the present proceeding as one in which beneficiaries under a trust join the trustee in an action against the promisor (see Starke, ‘Contracts for the Benefit of Third Parties, Part III’ (1948) 21 ALJ 455, 458-459).   The respondents deny the trust.  They say that the Chippers’ rights against Octra are purely contractual, and if it be the fact that Octra did not do everything reasonably necessary to enable them to enjoy the first right of refusal under the lease, the Chippers’ remedy would sound in damages only.

53                  There is, of course, nothing novel about treating the benefit of a contractual promise as a species of property that may be held on trust: see Heydon and Leeming, Jacobs’ Law of Trusts in Australia, 7^th ed, 2006, p 22-23.  The authors say:

In most cases, however, there is no direct expression of intention as to whether the benefit of A’s promise to B is or is not to be held on trust; in these cases, it becomes a question of determining whether, from the words actually used in the contract, and in the light of all admissible surrounding circumstances, the promisee evinced an intention to be a trustee of the benefit of the covenant.  The trust property is the benefit of the promisor’s promise.  That was certainly the view adopted by Fullager J in Creamoata Ltd v Rice Equalization Association Ltd (1953) 89 CLR 286, 319.  By “the benefit of the promisor’s promise” is meant the promisee’s right to sue at law for damages or in equity for an injunction or specific performance, should such an occasion arise.

There is no reason why the court should be especially cautious in its task of considering whether the circumstances are such as to justify the inference that a trust was intended: Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43, 67; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 120-121; Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 502-503.  Indeed,

[if] the inference is to be drawn that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred. 

Bahr v Nicolay [No 2] (1988) 164 CLR 604, 618-619 per Mason CJ and Dawson J.  And,

… the courts will recognise the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended.

Trident, 165 CLR at 121 per Mason CJ and Wilson J.

54                  In order to understand the submissions made on behalf of Peter Smyth and Octra apropos the Chippers’ suggestion that the benefit of Octra’s first right of refusal under the lease was held on trust for them, it is necessary to refer to the position that those respondents take about the legal effect of the sub-lease.  It is pointed out on behalf of Smyth and Octra that, with insignificant exceptions, the sub-lease was the same as the lease, and that the effect of the sub-lease was to vest in the Chippers everything which Octra itself had under the lease.  It is then said that the consequence in law was that the sub-lease operated as an assignment of the leasehold interest, such that Octra no longer had any interest in the land: Milmo v Carreras [1946] 1 KB 306, 310-311; Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404, 410-411.  It is submitted on behalf of those respondents that the sub-lease still has contractual force, such that Octra could sue for rent, exercise a contractual power of forfeiture, or re-enter for breach of a condition.  It is submitted that, when the lease and the sub-lease were executed, Octra’s first right of refusal under the lease was a contractual right, did not involve any interest in the farm as such, and did not ‘touch and concern’ the interest in land conveyed by the lease: Sandhurst Trustees Ltd v Australian Country Cinemas Pty Ltd [2006] QSC 165.  Accordingly, it is submitted, when the sub-lease was executed, the Chippers received the interest in land which was conveyed to Octra by the lease, but the first right of refusal under the lease, being a contractual right only, remained with Octra.  Smyth and Octra accept that Octra was obliged to do all things reasonably necessary on its part to enable the Chippers to have the benefit of that right, but no trust thereof was intended.  It is said that the parties to the sub-lease did not ‘actually’ intend that the leasehold interest thereby be assigned to the Chippers: that occurred by operation of law (ie, under the principle in Milmo v Carreras).

55                  I am prepared to accept that, in the circumstances of the present case, by execution of the sub-lease, Octra made itself a stranger to the land in the way described by Lord Greene MR in Milmo v Carreras.  I consider that that circumstance, however, is irrelevant both to the present question whether Octra held the first right of refusal on trust and to other questions which have become controversial in this proceeding.  As to the trust aspect, the question for the court is whether the contractual promise in the lease was held on trust for the Chippers.  That question remains to be answered, by a conventional analysis, whether or not Octra’s relevant interest in land was effectively assigned to the Chippers.  Indeed, the question would be the same even if the capacity in which Smyth made that promise to Octra were not that of a lessor to his lessee.  Smyth and Octra accept that, at all relevant times, Octra was the promisee under the lease in relation to the first right of refusal.  The present question is whether it held that benefit absolutely, or on trust for the Chippers.

56                  On behalf of Red Valley it is contended that the result of the execution of the lease and the sub-lease was wholly contractual.  Peter Smyth leased the farm to Octra, and Octra sub-leased it to the Chippers.  Counsel contended that the common law alone would be sufficient to define the obligations arising from those transactions, and that ‘equity does not need to intervene’.  He pointed out that the present case was not one in which the putative beneficiaries were devoid of any direct contractual basis for enforcing their rights, as was the situation in Trident.  He relied upon the express terms of the lease and the sub-lease, and upon the implied term requiring Octra to do all things reasonably necessary.

57                  I consider that, essentially, the propositions advanced by counsel for Red Valley beg the question.  Merely to assert that the lease and the sub-lease contain a full suite of obligations that would be enforced at law does not come to grips with the question whether the nature of those obligations, and the factual context in which they arose, justify taking the next step of inferring that a trust was intended.  Indeed, counsel’s propositions about the sufficiency of remedies at law are confounded by his own submission, elsewhere, that the Chippers never had a first right of refusal under the sub-lease because the triggering event, that Octra wished to sell the freehold, did not and could not occur.  Counsel submitted:

At no time has Octra wished to sell the freehold of Glenoban Farm.  It does not own the freehold.  It cannot form a wish to sell that which it does not own.

That the Chippers’ rights under the sub-lease might have been defeated by the self-evident circumstance that Octra did not own the freehold is a result so unrealistic and so manifestly unjust that I have no hesitation in finding that it was not intended, either by Octra or by Peter Smyth.  Whether the implied best endeavours term for which Red Valley contended would be sufficient to overcome the anomaly involved in a literal reading of the sub-lease is a matter to which I shall turn presently.

58                  On the other hand, in the facts of the present case, there are several indications of an intention that the benefit of cl 6(d)(ii) should be held on trust.  First, there is the nature of Octra itself and its relationship with Peter Smyth.  Octra is the Smyths’ family trust company.  It is inherently improbable that Smyth and Octra contemplated that Octra itself might have desired to take beneficially under the first right of refusal.  Had it exercised that right other than in the interests of the Chippers, the persons beneficially entitled would have been Smyth and the other members of his family.  In other words, Smyth would effectively have been giving himself a first right of refusal – an outcome which must be regarded as curious.

59                  Secondly, there are the circumstances in which Octra was introduced into the relationship between Smyth and the Chippers.  This was done, it seems, because of taxation benefits that would accrue to the Smyth family.  I infer that Smyth would not have intended that the Chippers would be any worse off as a result of the arrangement than if they had been the lessees directly (in which case, of course, they would have had the direct benefit of the first right of refusal in the lease).  Such an inference is confirmed by the way David Smyth dealt with the Chippers during the period in which he was originally seeking a buyer for the farm and later pressing the Chippers as to whether they were prepared to buy the farm for the price and on the conditions agreed with Red Valley. 

60                  Thirdly, there are the terms of cl 6(d)(ii) of the sub-lease.  They speak of the sub-lessor wishing to sell the freehold.  That could occur only if the sub-lessor had the freehold and, given the subject-matter of the provision and the contemporaneity of the execution of the lease and the sub-lease, it is a small step to infer that the parties had in mind that the most obvious means by which Octra would come by the freehold would be by exercising its own right of first refusal under the lease.  I can think of no other reason for the reference to the freehold in cl 6(d)(ii) of the sub-lease than to require Octra to hold its own rights under the corresponding provisions of the lease for the benefit of the Chippers.

61                  Fourthly, there is the implied obligation upon Octra to do all things reasonably necessary on its part to enable the Chippers to have the benefit of the right of first refusal of the lease (upon which all parties are agreed).  Although it is true that such an obligation does not point uniquely to a trust, it is descriptive of a duty which a trustee would have in the circumstances.  Octra was in effect under a contractual obligation to exercise its own right of first refusal under the lease for the benefit of the Chippers.  That Octra should have been willing to accept a contractual obligation of this kind strongly bespeaks an intention to create a trust.  Put another way, the existence of the implied obligation effectively excludes the possibility that Octra might have exercised (or chosen not to exercise) its right to buy the farm in priority to other intending purchasers in its own interests only; and if so, the only other parties in whose interests it might have done these things were the Chippers.  If the legal position arising from such a conclusion is something short of a trust, it is a distinction which I find difficult to follow.

62                  It may be useful to consider the implied term to which I referred in the previous paragraph in a little more detail.  As formulated, it sounds reasonable enough, but what would it mean in practice?  What would Octra have been required to do to give the Chippers the benefit of the first right of refusal in the lease?  If a situation arose in which Peter Smyth proposed to offer the land for sale for a particular price and on particular  conditions, presumably (absent a trust) it is suggested that Octra would exercise its own first right of refusal under the lease (so that the land was not, by Octra’s inaction, sold to a third party).  Having entered into a contract to purchase the land with Smyth, what was Octra to do next?  Perhaps it was obliged to assign its rights under that contract to the Chippers.  Or perhaps it was obliged to purchase the freehold and then to re-transfer to the Chippers.  Or perhaps there might have been other outcomes.  The fact is that, if the Chippers had no more than contractual rights against Octra in relation to the implied term, the practical working out of those rights, and the identification of precisely when Octra would have been in breach of the term by having failed to take precisely what step, would have been problematic to say the least.  The inference that a trust was intended is, I consider, strengthened somewhat by reason of the simplicity and obviousness of such an outcome.

63                  For the above reasons I hold that Octra held the benefit of Peter Smyth’s promise under cl 6(d)(ii) of the lease on trust for the Chippers.

construction of the lease

64                  I shall turn next to the construction of cl 6(d)(ii) of the lease, by which Peter Smyth granted Octra a first right of refusal over the freehold of the farm.  Clause 6(d)(ii) contains three sentences.  The first sentence requires the lessor to give the lessee one month’s notice of intended sale, prior to advertisement.  The purpose of this is twofold.  First, the giving of such notice is a pre-condition to the lessor’s right to bring prospective purchasers onto the farm for inspection as provided for in the second sentence.    Secondly, the notice will give the lessee an interregnum, as it were, during which to consider the exercise of the first right of refusal for which the third sentence provides. That right is expressed in the following terms:

The Lessee will have the first right of refusal to purchase the land for the same consideration and conditions as the Property is offered for sale to any other proposed purchaser.

This provision raises two issues as a matter of construction: first, what is the event which brings the provision into operation (or the ‘trigger’ as it is often referred to); and secondly, once brought into operation, how does the provision operate?  I shall consider each in turn.

65                  Superficially, identifying the trigger under cl 6(d)(ii) is a simple matter: it is the lessor’s offer of the property for sale to another proposed purchaser.  At this level, there was no controversy about the construction of the provision in this proceeding.  The real controversy in the present case concerns the operation of the provision in circumstances where the vendor has complied with the primary obligation to give the lessee the first right of refusal, where the lessee has refused, where the vendor has entered into a contract of sale with a third party, and where that contract is later varied, before settlement, to the advantage of the third party.  Does the vendor then have to return to the lessee with the contract as varied, or as proposed to be varied, and give the latter another opportunity to refuse, or to accept, the vendor’s offer on the newly-established terms?

66                  Peter Smyth and Octra (supported by Red Valley) contend that, where the lessee has been given, and has rejected, the opportunity to purchase under terms being offered to another purchaser, only a second or subsequent offer to that other purchaser which differs materially from the original offer which was rejected by the lessee need be the subject of a further opportunity to refuse under this provision of the lease.  They contend that the draftsman could not have intended that the lessee would be presented with the opportunity to purchase at a price, or under conditions, which did not differ materially from those previously offered, and rejected.  It was submitted on behalf of the Chippers, by contrast, that to require a departure from a previous offer to be ‘material’, would be to introduce uncertainty, and great scope for disputation, into the terms of an otherwise uncomplicated provision. 

67                  I must confess to a difficulty with the proposal to introduce, by implication, a requirement of materiality into cl 6(d)(ii).  The word itself is of flexible content; if it were expressly in the provision, the court’s first task would be to give it a meaning in context.  It may be thought a curious approach to the construction of an uncomplicated provision to introduce a word by implication, only then to face the task of construing that word.  The problem is demonstrated by the facts of the present case.  It became clear that the respondents’ purpose in having the court construe cl 6(d)(ii) as though it were limited by an implied requirement of materiality was not so much the achievement of that implication in itself as the assignment of a particular connotation to the word ‘material’ which suited their case.  Thus, to make the implication would be only the first, and manifestly the less contentious, of the two steps in their argument.

68                  If the word ‘material’ were by implication read into the third sentence of cl 6(d)(ii), on one view it would mean no more than ‘relevant’ and would present no problems for the Chippers in this proceeding.  Even without any implication, in a situation where the property in question has been offered to the lessee for a particular consideration, and on particular conditions, I would hold that it should not be regarded as being subsequently offered to another purchaser for a different consideration, or on different conditions, where –

a)      the combination of consideration and conditions offered to the other purchaser is manifestly inferior (from the purchaser’s point of view) to those previously rejected; or

b)      the subsequent offer differs from a previous, rejected, offer only in a way that could have no application to the position of the lessee.

An example of the latter may be seen in the facts of the present case.  Condition 15 of the contract between Peter Smyth and Red Valley gave Red Valley a period of grace within which to consider the acceptability of the terms of the lease to which the farm was then subject.  Such a condition would have made no sense in a contract in which the lessee was the purchaser.  If the concept of materiality is given a connotation which goes no further than the two provisos to which I have referred, there could be little harm in making the implication.  For my own part, I would prefer to reach the same result by a direct process of construction in the manner suggested.  If it is suggested that the concept of materiality should have a wider role than this, I would reject the suggestion that it should be used.  In particular, I think it would be out of harmony with the scheme of the provision to render it inoperative when a later court might be persuaded that the substantive difference between terms now being offered and terms previously rejected was immaterial only in the sense of being somewhat unimportant.  The scheme of the provision is that relative importance is a matter for the lessee.

69                  Peter Smyth, Octra and Red Valley also submit, in effect, that the third sentence of cl 6(d)(ii) is exhausted once a contract of sale is entered into with a purchaser other than the lessee (assuming always that the lessee will have been offered, and will have rejected, the opportunity to buy under the relevant price and conditions).  They submit that, short of making a new contract with the other purchaser, any subsequent variation of the existing contract with that purchaser will not give rise to a  fresh ‘offer for sale’ within the meaning of the provision.  

70                  I would accept that, in its most obvious setting, the third sentence of cl 6(d)(ii) is intended to operate prior to a contract of sale being executed.  Indeed, execution of a contract under which the land is sold to ‘any other purchaser’ without the lessee first having been given a right of refusal would be the clearest instance of a breach of the provision.  To identify what might be regarded as the paradigm case, however, does not necessarily confine the operation of the provision to those circumstances.  The question is not whether the land is offered for sale simpliciter – it is whether the land is offered for sale for a consideration, and under conditions, which were rejected by the lessee when given the first right of refusal.  I do not believe that this question is necessarily to be answered only by reference to the existence or otherwise of a binding contract for sale.  The answer in a particular case will depend on the facts, and should not, in my view, be approached a priori on a particular jurisprudential basis that would deflect attention away from those facts and the application to them of the words used in the provision.

71                  The third sentence in cl 6(d)(ii) of the lease appears to contemplate, not unreasonably, a vendor wishing to maximise the price for which, and to optimise the conditions under which, he or she would sell the land in question.  It contemplates that the vendor might, at first at least, find purchasers unwilling to accept the terms thus proposed.  It contemplates, in other words, a situation in which alternative, or successive, purchasers would refuse to accept the vendor’s terms.  The vendor may have to reduce the price, or make the conditions more attractive to a purchaser, in order to achieve a sale.  In this process, it is the lessee who must, at each stage, be given an opportunity to be the first in line to refuse the vendor’s price and conditions.  That such a cascading series of offers, or opportunities to purchase, is contemplated by a provision such as this was the construction adopted in reaction to a similar provision by Madgwick J in White Property Developments Pty Ltd v Richmond Growth Pty Ltd [1998] FCA 26, and it is a construction with which I respectfully agree.  Consistently, it seems to me, if a contract of sale is made with a third party, but is later terminated before settlement, any new contract with the same or another third party on terms more favourable to the purchaser ought to be regarded as another offer for sale.  Whether a variation to the original contract (rather than a termination thereof) on terms more favourable to the purchaser would be regarded as another offer for sale will, in my view, be a question of fact.  The prospect that there might be an affirmative answer to that question should not be excluded a priori on the mere basis that there had been a variation, rather than a termination followed by another contract.

72                  I would hold that the vendor’s obligation to offer the lessee the opportunity to be the first to refuse is not necessarily forever brought to an end by the execution of a contract of sale between the vendor and a third party purchaser.

73                  I turn now to the second issue to which I referred in par 64 above: once brought into operation, how does the third sentence in cl 6(d)(ii) operate?  What rights does the lessee have upon the operation of the provision being ‘triggered’?  There are two Australian judgments which are frequently cited in this general area.  The first is that of Street J in Mackay v Wilson (1947) 47 SR (NSW) 315.  Under a sale of business agreement, the purchasers were given a ‘first option for purchasing the property’.  When subsequently they sought to exercise what they regarded as an option, the vendors (who by then did not wish to sell the property for the price agreed) claimed that the agreement gave the purchasers no more than a right to be first in line when there were two or more prospective purchasers.  The actual outcome of the case has little to do with first rights of refusal, since a majority of the Full Court held that the agreement gave the purchasers an option which could be exercised at any time.  However, the following observations of Street J have received widespread support in the jurisprudence relating to first rights of refusal (47 SR at 325):

Speaking generally, the giving of an option to purchase land prima facie implies that the giver of the option is to be taken as making a continuing offer to sell the land, which may at any moment be converted into a contract by the optionee notifying his acceptance of that offer.  The agreement to give the option imposes a positive obligation on the prospective vendor to keep the offer open during the agreed period so that it remains available for acceptance by the optionee at any moment within that period.  It has more than a mere contractual operation and confers upon the optionee an equitable interest in the land, the subject of the agreement: see, for example, per Williams J in Sharp v The Union Trustee Co of Australia Ltd (1944) 69 CLR 539 at 558.

But an agreement to give “the first refusal” or “a right of pre-emption” confers no immediate right upon the prospective purchaser.  It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer.  It is not an offer and in itself it imposes no obligation on the owner of the land to sell the same.  He may do so or not as he wishes.  But if he does decide to sell, then the holder of the right of first refusal has the right to receive the first offer, which he also may accept or not as he wishes.  The right is merely contractual and no equitable interest in the land is created by the agreement.

74                  The second judgment is that of Fullagar and Kitto JJ in Woodroffe v Box (1954) 92 CLR 245.  There, a  landowner and his tenant were parties to an agreement in which the landowner covenanted that, after his death and that of his wife, his executors would give to the tenant ‘the right of first refusal to purchase’ the land in question for a stated price.  Their Honours held that, although a ‘right of first refusal [meant] a right of pre-emption’, they did not regard the expression ‘as bearing any very strong or clear prima facie meaning’ (92 CLR at 260).  They noted, in the facts before them, ‘quite strong indications that something real and immediately effective is intended to be given as at a fixed point in time’ (at 261) and held that, on the death of the survivor of the landowner and his wife, there was an offer to the tenant for the sale of the land which could be accepted.  In the course of their judgment, Fullagar and Kitto JJ undertook an extensive review of the authorities to that point, and said (at 257):

The position revealed by the cases and by what is said in them is precisely what one would, in the absence of authority, have supposed it to be.  The term “first refusal” is not a technical term.  It is a colloquial term, and indeed a somewhat inept term, because what the potential offeree wants is an opportunity of accepting an offer rather than an opportunity of refusing an offer.  It may, and does, occur in various phrases, such as “give the first refusal”, “have the first refusal”, “give the right of first refusal”, “have the right of first refusal”, etc.  And these phrases may be found in various contexts.  It seems clear that a mere promise to give the first refusal should be taken prima facie as conferring no more than a pre-emptive right.  If I promise to give you the first refusal of my property, I am making prima facie only a negative promise: I am saying: “I will not sell my property unless and until I have offered it to you and you have refused it”.

Summarising the position, their Honours said (at 258):

The truth is, indeed, that, in dealing with such a loose and colloquial expression, it may often be a mistake to cling strongly to a preconceived meaning.  The safer and sounder course is to regard it as an expression of fairly flexible import, to look at the whole of what the parties to an instrument have said, and in the light of that whole to determine whether they have or have not conveyed an intention that an immediate offer is being made or is to be made.

75                  The position is, therefore, that the mere use of the expression, ‘first right of refusal’, or some cognate expression, does not yield a unique outcome pre-defined by the law: Pata Nominees Pty Ltd v Durnsford Pty Ltd [1988] WAR 365, 372;  Goldmaster Homes Pty Ltd v Johnson (2004) 12 BPR 23,167, [34].   Everything will depend on the terms of the instrument by which the right is granted.  Not infrequently, a promise of a first right of refusal will be made with less definition that might be ideal, or in terms that are ‘so loose and colloquial that it could not be supposed that they would be employed in a professionally drafted document unless the means by which effect is to be given to them are also carefully spelt out’: Goldmaster Homes at [39].  On the other hand, once it be accepted that the terms of the instrument of grant will govern the content of the grantor’s obligation, there seems no reason why, where the instrument is well-drawn, it might not produce a result which is not only unambiguous but in which it is possible to identify the timing and nature of the grantee’s rights in particular circumstances.

76                  In cl 6(d)(ii) of the lease in the present case, the lessee’s right of ‘refusal’ is, I consider, a right to refuse (or, necessarily, to accept) an offer to purchase the freehold.  The lessor’s corresponding obligation has both a negative aspect and a positive aspect.  In its negative aspect, it involves an implied covenant that the lessor will not sell the land to a third party without first offering it to the lessee for the same price and on the same conditions as are involved in the sale, or proposed sale, to the third party.  I do not hold that a mere offer to the third party without an earlier offer to the lessee would involve a breach of the implied negative covenant.  The use of the present tense in the subordinate clause shows that such an offer may be made.  However, as between the lessor and the lessee, it would be a breach of the clause for the lessor to put it beyond his or her power to prevent a contract of sale with the third party coming into existence without the lessee being given a right to refuse or accept on the same terms.  Thus a conditional offer to the third party, in which that party’s rights were subordinated to those of the lessee, would not involve a breach of the implied negative covenant.  However, the authorities (to which I shall turn in another context) demonstrate that the execution of a contract of sale with another person, without any offer having been made to the lessee, should generally be regarded as a breach of the negative covenant. 

77                  In its positive aspect, the provision in the lease requires the lessor, on the occurrence of the triggering event, to make an offer to the lessee for the same price, and on the same conditions, as are involved in the sale, or proposed sale, to the other.  The question may arise in some cases whether the lessor is under an implied obligation to leave the offer open for a reasonable period of time.  However, if a contract for sale is entered into with another person without an offer having been made, generally it would be held that a failure to make an offer at all constituted a breach of the positive aspect of the provision.

Compliance with the lease by Peter Smyth

78                  It is necessary next to return to the facts of the present case.  I commence with condition 15 of the contract between Peter Smyth and Red Valley executed on 19 September 2005.  Fairly clearly, the first sentence thereof makes the existence of the contract subject to Red Valley’s satisfaction with the terms and conditions of the lease.  An issue arises concerning the second sentence, however.  What happens if, within the 28 days, Red Valley did not provide any confirmation as to its “satisfaction or otherwise”?  On one view, there can be no contract unless and until Red Valley provides that confirmation, albeit that Red Valley might be in breach of the single obligation which did have contractual force, namely, to provide confirmation within 28 days.  On another view, Red Valley had 28 days within which to examine the lease and the sub-lease, after which the contract would be unconditional.  The dynamics of the relationship between those representing Peter Smyth on the one hand and those representing Red Valley on the other hand in the period between October 2005 and February 2006 suggests that each side may have perceived a risk that an outcome adverse to its own interests might ensue as a result of the operation of condition 15.  The subsequent acts of the parties, however, do not resolve the question of construction.  I consider that the second construction to which I referred is the correct one, namely, that Red Valley had 28 days within which to express its satisfaction or otherwise, and if it did not do so, the contract became unconditional after the 28^th day.  In part I so conclude because condition 15 was requested, and drafted, by King on behalf of Red Valley.  In part I am influenced by the purpose of the condition: to give Red Valley an opportunity to peruse the lease and the sub-lease, not an opportunity by procrastination to defeat the intent of the contract as a whole.  And in part I base my conclusion on the oddity of the alternative construction – that, on 19 September 2005, the only contract which the parties made was one in which Red Valley promised to confirm its satisfaction or otherwise within 28 days.

79                  It follows that the contract of 19 September 2005 would have become unconditional on 17 October 2005.  That was, however, the date of the first variation to the contract signed on behalf of the parties on 17 and 22 November 2005.  Although not signed until about a month later, the date of the document itself, together with the coincidence of the expiry of the 28 days under condition 15, leads me to conclude that the parties intended that the variation should be operative from 17 October 2005.  It follows that the contract remained conditional at that stage.

80                  However, although the conduct of Anderson may be regarded as bespeaking a different view, I consider that, when 15 December 2005 passed, the contract became unconditional and Red Valley lost its opportunity to avoid the contract on the ground of its non-satisfaction with the lease pursuant to condition 15.   Red Valley was then obliged to pay the deposit by 22 December 2005.  It did not do so.  Under the General Conditions for the Sale of Land (2002 Rev) published by the Law Society of WA and the Real Estate Institute of WA, which were incorporated, Smyth had the ability to require Red Valley to pay the deposit within 48 hours and, in default of payment, to terminate the contract.  This was not done.  It was apparent from the evidence of David Smyth that he regarded Red Valley as presenting the only realistic prospect of a sale at that time.  However that may be, in circumstances where his father could have terminated the contract, he instead procured Woolcock to do what he could to hold Red Valley to the contract it had signed.

81                  But David Smyth did not seek to hold Red Valley to the contract in its then terms.  To the contrary, he pressed Red Valley for a variation to the contract.  Under the variation executed on 1 March 2006, a first instalment of the deposit ($90,000) was payable within 7 days, and the balance by 31 May 2006.  The question which arises is whether in the circumstances that variation involved an offer of the farm to Red Valley – and, should it matter, an agreement to sell the farm to Red Valley – distinct from that which had been rejected by the Chippers in November 2005.  Under the agreement of 19 September 2005, a payment of $10,000 was due on that day and a further $130,000 was due by 18 November 2005.  For a purchase under which settlement was not due until 19 September 2006, to have been denied the use of the deposit moneys for about 10 months would, I infer, have been regarded by Red Valley as being commercially detrimental.  In chief, on the subject of splitting the deposit, Anderson said that he did not like “having $140,000 sitting around in an agent’s trust account doing nothing for so long”.  Under cross-examination, he made it clear that he did not like the idea of having $50,000 of his own money in an Elders’ trust account “so it can sit there for the next year when there is litigation on hand”.

82                  I consider that the obligation to pay $90,000 by 8 March 2006 and a further $50,000 by 31 May 2006 was, for Red Valley, a very different thing from its obligation under the agreement of 19 September 2005 – to pay $10,000 then and a further $130,000 by 18 November 2005.  Both because of the clearly more beneficial (for the purchaser) terms of the agreement of 1 March 2006, and because, as a matter of commercial reality, that agreement was sufficient to restore Anderson’s commitment to the purchase, I consider that Smyth’s assent to the variation should be characterised as an offer for sale in its own right.  Both legally and commercially, what arose from the transaction concluded on 1 March 2006 was a consensus quite different from that of the previous September: should it be necessary, I would go to the extent of saying materially different.

83                  The Chippers were entitled to be given a first right of refusal to purchase the farm on the same conditions as were involved in the Red Valley contract of 1 March 2006.  Manifestly, this did not occur.  To the contrary, Peter Smyth not only failed to offer the farm to the Chippers on those conditions: he bound himself to sell it to Red Valley.  He was in breach, therefore, of both the negative and the positive aspects of his contractual obligations under the first right of refusal in the lease.

Availability of an injunction

84                  Although the Chippers have not sought an injunction in this proceeding, I think that an analysis of the legal issues involved, and of their application to the facts, will be assisted by considering first whether the Chippers, or Octra as their trustee, would succeed in an action for an injunction to restrain Peter Smyth from completing the sale of the farm to Red Valley.  Ignoring for a moment the position of Red Valley itself, it is hard to see why an injunction would not go in the circumstances.  As noted above, one aspect of the first right of refusal in the lease is the negative covenant.  The contract of sale with Red Valley was a breach of that covenant.  The performance of that contract could be restrained before registration of the transfer.  As between Octra (and therefore, beneficially, the Chippers) and Smyth, the case for an injunction would seem to be unanswerable.

85                  The real problem, of course, is that the making of such an injunction would oblige Smyth to break his contract with Red Valley.  Smyth could not, of course, be heard to complain about that circumstance.  But what of Red Valley, considered as a third party seeking to uphold its own contractual rights? 

86                  Here one finds the applicable principle in the judgment of the English Court of Appeal in Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch 37.  In that case the canal company and the racecourse company owned adjoining lands.  They entered into an agreement (which was validated by Act of Parliament, a circumstance which is presently irrelevant) that contained a provision in the following terms:

If and whenever the lands … belonging to the racecourse company, and now used as a racecourse, shall cease to be used as a racecourse, or should the … lands … be at any time proposed to be used for dock purposes, then and in either of such cases the racecourse company shall give to the canal company the first refusal of the … lands …

The canal company indicated to the racecourse company that it desired to purchase some of the racecourse land.  Negotiations followed, but the parties were a distance apart on price – the racecourse company suggesting that the land was worth ₤350,000 and the canal company being prepared to offer ₤200,000.  At this point, it appeared that the negotiations had broken down.  Unbeknownst to the canal company, the racecourse company then offered the land to a third party for ₤300,000, and ultimately entered into a contract to sell it to the third party for ₤280,000.  The court held that the offer to the third party was a breach of the term requiring the racecourse company to give the canal company the first refusal.  It held that the former could not rely on its unrealistic offer of ₤350,000. 

87                  At first instance, Farwell J granted the canal company an injunction restraining the racecourse company from selling the land to any person or company without having first offered it to the canal company at the same cash price as the third party offered, and an injunction restraining both the racecourse company and the third party from completing or carrying out their contract.  The Court of Appeal considered what objections there might be to those injunctions.  The third party, which had been joined, said that the agreement could not be enforced against it, as it was only the alienee of the land.  Farwell J had answered this point by holding that the provision in the agreement gave the canal company an interest in land ([1900] 2 Ch 352, 366).  The Court of Appeal held that that was not so, but continued ([1901] 2 Ch at 50-51):

It seems, however, from the decision in Willmott v Barber (1880) 15 Ch D 96 that the [third party] could not obtain a decree for specific performance of a contract for sale and purchase of land, if that sale would be a breach of a prior contract with a third person;  and it seems to us to follow that one ought to treat this case on the basis of an action to restrain a breach of a contract threatened to be carried out in pursuance of a subsequent contract by the [racecourse company] with a third person having full knowledge of the first contract.  This seems to bring the case within the principle of Lumley v Wagner 1 D M & G 604.  The contract here to give the canal company the “first refusal” involves a negative contract not to part with the land to any other company or person without giving that first refusal.  If the action had been brought against the racecourse company, the party to the contract, alone, the injunction asked for could not have been granted without affecting the rights and interests of the [third party].  They are necessary parties to the action …;  and, if the [third party], thus brought in, comes and insists on his right to have the second contract carried out, we do not see why the injunction should not  be granted against him.

On the face of it, this passage seems to resolve the question in the present case whether Red Valley’s own rights arising from its contract as varied on 1 March 2006 should stand in the way of the Chippers’ right to an injunction to restrain Peter Smyth from selling the farm to any other person without first giving them a right of refusal.

88                  In Pritchard v Briggs [1980] Ch 338 (to which I shall refer below), Goff LJ described Manchester Ship as ‘the extremely important and controversial case’ (at 390).  The point of controversy, however, seemed to be the Court of Appeal’s finding that the canal company did not have an interest in land, rather than the appropriateness of so much of the judgment as held that an injunction might go in circumstances where the third party, with knowledge of the canal company’s rights, sought completion of its later contract to purchase the land.  Indeed, his Lordship held that Manchester Ship was authority for the proposition (rejected by the majority in Pritchard v Briggs) that ‘in general a right of pre-emption does not create an interest in land’.  (at 393) Templeman LJ did not mention Manchester Ship, and while Stephenson LJ described it as a ‘somewhat unsatisfactory decision’ (at 423), again his Lordship was dealing with the question of an interest in land, rather than the point with which I am presently concerned.

89                  I have not observed any suggestion that Manchester Ship is not, in presently relevant respects, still good law in Australia.  Fullagar and Kitto JJ discussed it extensively without criticism in Woodroffe v Box (92 CLR at 256-257).  Although concerned with a restrictive covenant rather than with a first right of refusal, in Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154, the High Court cited Manchester Ship as authority for the proposition that –

… equity would restrain a threatened breach of contract to sell land by performance of a subsequent contract by the defendant with a third person who had full knowledge of the first contract (at 165).

90                  In the specific context of a first right of refusal, Manchester Ship was followed in the case perhaps most closely analogous to the present one:  Sterns Trading Pty Ltd v Shteinman [1988] NSW ConvR ¶55-414.  There, a lease of commercial premises contained a provision in the following terms:

In the event that that lessor desires to sell the demised premises by private treaty or by auction he shall give to the lessee notice in writing of such proposed sale which shall include an Agreement for Sale comprising the same terms and conditions upon which the lessor proposes to sell and in the case of an auction the purchase price in the said Agreement shall be the reserve price to be set by the lessor at such auction.  The lessee shall have fourteen (14) days from the date of service upon him of such notice in which to exchange Agreements for the purchase of the demised premises upon the terms and conditions contained in the said Agreement for Sale.  In the event that the lessee does not exercise his right of first refusal as contained in this clause by exchanging the said Contract for Sale for the purchase of the demised premises such right shall lapse absolutely and the lessor shall be free to sell the demises premises without any restrictions whatsoever.

In the facts of that case, the lessor received offers to purchase the land from a third party.  He asked the lessee’s representative if he were interested in purchasing at a price of $1.6 m.  The latter said that such a price was more than the land was worth by a considerable margin.  Some time later, the two men had a further conversation, in which Kearney J found that the lessee’s representative had said that the property was worth approximately $600,000 and the lessor had said that he wanted $1 m.  The lessor then entered into a contract with the third party by which the latter was granted an option to buy the land for $1 m., and subject to detailed conditions by which the sale, if the option were exercised, would be governed.  One of those conditions was that possession would be ‘subject to existing tenancies and occupancies under the vendor, as particularised in the third schedule’.  The lease was referred to in that schedule, and a copy was attached.  When the lessee learnt of this transaction, and after an attempt by its solicitors to achieve an accommodation with the lessor by correspondence, it instituted proceedings in which it sought an injunction restraining the lessor from selling, and later joined the third party (and its nominee under the option) from exercising the option.  There were interlocutory orders made at various stages (during which, seemingly in breach of one of those orders but without knowledge of it, the third party purported to exercise the option), but an understanding of the point of principle by reference to which Kearney J finally disposed of the litigation does not require an examination of those orders or the circumstances in which they were made.

91                  In Sterns Trading the lessee relied upon Manchester Ship for the principle that an injunction would go to restrain an act in breach of a negative stipulation in a contract (ie the negative stipulation implicit in a first right of refusal) and that the third party, who had contracted in full knowledge of the stipulation, would not be heard to resist the injunction.  It seems that the lessor did not engage the lessee at this level.  The third party and its nominee, however, contended in their cross claim that the nominee had an equitable interest in the land, and that the lessee was therefore confined to its remedy in damages.  Kearney J dealt with that contention by holding that, at the moment the lessor granted the option to the third party, the lessee acquired an equitable interest which was superior to that of the third party.  However, his Honour pointed out that some aspects of these questions had not been the subject of argument and that, therefore, it was not necessary to answer the contention that the third party had an equitable interest in that way –

… because even conceding such interest, the principle relied upon by the [lessee] stemming from the Manchester Ship Canal case, would overreach the equitable interest sought to be relied upon in any event.

I agree, with respect, with his Honour’s reading of Manchester Ship.  The judgment of the Court of Appeal in that case is, I consider, authority for the proposition that, where an intending purchaser of land, having knowledge of another person’s first right of refusal under a prior contract with respect to the land, enters into a contract in circumstances which constitute a breach by the vendor of his or her obligation to offer that first right to the other person, the interest which equity would otherwise recognise as coming into existence upon execution of the later contract will not stand in the way of the vendor, and the intending purchaser, being enjoined, at the suit of the other person, from completing that contract.

92                  The principle which I have extracted from Manchester Ship requires, of course, that the third party purchaser know of the pre-existing rights of the holder of the first right of refusal.  In the present case, Anderson had read both the lease and the sub-lease.  He knew of the first rights of refusal held both by Octra and by the Chippers.  In 2005, he had been concerned to avoid getting involved in a court case arising out of a failure by Peter Smyth to give effect to these rights.  But what was Anderson’s state of knowledge come 1 March 2006?  He said that he did not then believe that the Chippers had any right to seek to buy the farm, and that he did not believe the Chippers were interested in buying the farm.  Anderson’s belief as to the Chippers’ rights was, as expressed, a belief as to a matter of law.  To this point in these reasons, I have held the contrary.  However that may be, such a belief is of a different quality from the kind of knowledge necessarily involved in the Manchester Ship principle.  

93                  As to Anderson’s belief that he did not believe that the Chippers were interested in buying the farm, so much may be accepted.  It may also be accepted that, as at 1 March 2006, the Chippers had not communicated to David Smyth an intention to buy the farm.  But neither the Chippers’ then intentions nor Anderson’s belief on the subject is the issue which arises under Manchester Ship.  The issue concerns Red Valley’s knowledge of the fact that the Chippers were not given the opportunity to buy the farm on the terms newly agreed by Peter Smyth and Red Valley on 1 March 2006.

94                  The factual backdrop to a consideration of this issue includes Red Valley’s knowledge of the terms of the lease and of the presence of the first right of refusal therein and the fact that the variation to the contract with Peter Smyth, ultimately agreed to on 1 March 2006, was under discussion as between Woolcock and King in February.  It is obvious, from the tenor of his evidence, that Anderson did not consider that there was any need to consult the Chippers again.  There is no reason to infer that he assumed that David Smyth might have done so; but the fact is he gave no evidence one way or the other on that aspect.  Had Anderson believed (contrary to the fact) that the Chippers had been given an opportunity to buy the farm on the conditions of 1 March 2006, it would have been in his interests to say so, and to state the grounds on which he held that belief.  He did not do so; nor did Red Valley allege in its Defence that it had such grounds.  King, who was the person dealing with Woolcock on behalf of Red Valley in relation to the variation, would have been ideally placed to state such grounds, if there were any.   He was not called.  I infer, in the circumstances, that Anderson simply assumed that the Chippers (and Octra) did not need to be given a further opportunity to buy the property, and that he either assumed that they had not been, or did not give the question any thought at all.  I find that King had no reasonable grounds to believe, contrary to the facts, that such an opportunity had been given.  I would find, therefore, that Red Valley was, on 1 March 2006, in the position of a purchaser with notice of a contravention of an earlier first right of refusal for the purposes of the principle in Manchester Ship.

95                  A further, or possibly an alternative, basis upon which to reach the same result is to note that a purchaser who –

… has notice that the vendor … is not in possession of the property … must make inquiries of the person in possession … and find out from him what his rights are, and, if he does not choose to do that, then whatever title he acquires as purchaser … will be subject to the title or right of the tenant in possession.

(Hunt v Luck [1902] 1 Ch 428, 433)  The rule applies not only to the title or right of a tenant qua tenant: it extends also to the interest which the tenant has under a previous agreement for the sale of the subject land: Ramlal v Chaitlal [2004] 1 P & CR 1.  In the present case, I consider that, in circumstances where Red Valley chose to make no inquiries as to whether the Chippers had again (ie in late February 2006) been given the opportunity to buy the farm on the newly-agreed conditions, it is fixed with notice of the fact that no such opportunity was given. 

96                  For the above reasons, I consider that the Chippers would be entitled to an injunction to restrain Smyth from conveying the freehold of the farm to Red Valley, and to restrain Red Valley from taking such a conveyance.  As it happens, the Chippers do not claim an injunction: they seek specific performance of Smyth’s promise in cl 6(d)(ii) of the lease, to the benefit of which they claim to be, and I have held them to be, beneficially entitled.  It is to that subject that I next turn.

Specific performance

97                  Contracts involving the disposition of interests in land have always been considered proper subjects for specific performance: Dougan v Ley (1946) 71 CLR 142, 150; Meagher, Heydon and Leeming, Equity: Doctrines and Remedies, 4^th ed, p 658.  It is generally assumed that, prima facie at least, damages will be an inadequate remedy where a party refuses to make, or to accept, a conveyance of such an interest.  In the present case, there is nothing in the facts which would lead to a contrary conclusion.  If the position is such that, contractually, the Chippers (or, more specifically, Octra as their trustee) became entitled to a transfer of the freehold in the farm, there is nothing in the particular combination of facts in the present case which would make damages an adequate remedy.

98                  The real issues on the matter of specific performance are, first, whether the Chippers did become entitled to call for a conveyance of the freehold in the farm; secondly, whether Red Valley’s interest under its contract with Peter Smyth would be regarded by equity as superior to the interest of the Chippers in having the lease specifically performed; and thirdly, whether the Chippers were, and are, ready and willing to perform the obligations of purchaser under the contract by which they claim to be bound.

99                  In considering the first question, I have found it useful to commence with the judgment of Tipping J in Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762 (to which Warren J referred in Bob Jane T-Marts Pty Ltd v The Baptist Union of Victoria [1999] VSC 346, [17]-[18]).  As in many of the authorities to which I have been referred, Motor Works involved the question whether a caveat had been properly lodged by the holder of a first right of refusal and the question, therefore, of whether, and in what circumstances, such a holder had an interest in land.  Tipping J considered that it was appropriate to address those questions in four stages ([1997] 1 NZLR at 765):

Stage one is where all that exists is a bare right of pre-emption.  Stage two is reached when a triggering event occurs requiring an offer to be made to the person with the right of pre-emption.  Stage three relates to the time after an offer has been made pursuant to the right of pre-emption and stage four, for completeness, relates to the stage, if reached, when a contract results from the acceptance of such offer.

His Honour held that, on any view, no interest of land was created at the first stage.  Equally clearly, when the fourth stage had been reached, the purchaser had an equitable interest.  As to stage three, where an offer had been made but not yet accepted, his Honour held that the situation could not be materially distinguished from an option in the conventional sense, ‘and this creates an interest in land’.  In that respect, his Honour referred to Morland v Hales (1910) 30 NZLR 201 and to Bevin v Smith [1994] 3 NZLR 648.  To those authorities I would add, in the Australian context, Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, 75-76.

100               Tipping J observed that difficulties arose at the second stage.  His Honour said (at 765-766):

It is at stage two where the difficulties arise.  At this sage an event has occurred which requires the vendor to make an offer to the person holding the right of pre-emption but no such offer has been made.  The distinction between stage two and stage one is that at stage one no triggering event has occurred.  That is why at that stage it is clear no interest in land can arise because the vendor may never wish to sell during the currency of the right.  At stage two the vendor has decided to sell but, in breach of the right, has failed or refused to make the necessary offer to the holder of the right.  It is at this point that the holder of the right will usually be most vulnerable.  Clearly an injunction may be appropriate but a caveat may well be better because of its effect as notice to others interested in buying.

When analysing the point at stage two, it should not matter whether the right of pre-emption is couched as a negative covenant or as positive one, ie not to sell without first offering as opposed to offering before looking elsewhere.  In substance the effect is the same.  Once a triggering event has occurred, the holder of the right is entitled to receive an offer.  The Court can undoubtedly restrain the vendor from offering to a third party without first making an offer to the holder of the right.  More difficult is the question whether the Court can order the vendor to make an offer to the holder, a type of specific performance.

The vendor may say that if he cannot sell to the third party he repents of his wish to sell at all and thus he cannot be required to submit an offer to the holder.  On the other hand, there is greater force in the view that once the triggering event has occurred the holder is contractually entitled to an offer and the Court should order a reluctant vendor to make an offer.  In this respect the exact terms of the right may be important. 

In the present case the right is expressed as springing up “in the event the Landlord wishes to sell”.  There was here an overt manifestation of that wish.  Without something over the point may well be academic.  Following that over manifestation it was the duty of the landlord to offer the premises to the tenant first.  Subject to questions of certainty, I consider the tenant was thereupon entitled to seek an order in the nature of specific performance requiring the landlord to make the appropriate offer.  There may be difficulties about the terms on which the offer is to be made.  The Court cannot act without sufficient certainty of terms.  Thus, if there has been no overt manifestation of the terms which the vendor is prepared to accept elsewhere the matter can hardly proceed any further.  The court cannot tell the vendor what the terms should be.

Without prejudice to the question of an injunction, before any question of specific performance can arise, not only must the vendor have manifested a wish to sell but he must also have manifested the essential terms upon which he is willing to sell.  Then, but only then, can there be any question of specific performance.  Unless the court can order specific performance I do not see how the holder of the right of pre-emption will not have an interest in land unless and until the circumstances are such that specific performance can be ordered and the vendor thereby required to make an offer on sufficiently certain terms.

In the light of the evidence in the present case, this state of affairs, ie stage two, may well have prevailed at an earlier stage.  Earlier events are now, however, academic and there is no utility in my discussing them.  I am faced with the fact that ultimately Westminster Auto did make an offer to Motor Works which offer was refused.  Westminster Auto is now free to make the identical offer or an offer no more favourable to the offeree to anyone else it chooses.

I consider that Motor Works is now back to being the holder of a bare right of pre-emption.  A further triggering event will be necessary before Motor Works could claim that stage two has been reached again.  That triggering event would be a decision by Westminster Auto to make an offer to sell more favourable to the offeree than the offer made to Motor Works and declined by it.  There is nothing at the moment to say that Westminster Auto will decide to do that; for example, by reducing the price.  Thus for the purposes of the caveat I am of the view that while Motor Works may earlier have had an interest in land (a point requiring no final decision), it cannot be said that as things stand at the moment they do have any interest in land.  There is nothing of which specific performance could presently be ordered.  Thus their caveat, even if originally justified, cannot be justified in present circumstances.

In the facts of Motor Works itself, Tipping J was not required to consider the precise circumstances in which specific performance might be ordered, nor the terms of any such order, because his Honour held that the holder of the first right of refusal had been made an offer of the required kind and had refused it.  What is significant about Motor Works in the present context is his Honour’s suggestion that no question of specific performance could arise unless the vendor had manifested the essential terms upon which he was willing to sell, but that, once such manifestation had been made, the tenant was entitled to seek specific performance requiring the landlord to make the appropriate offer.  In the present case, by 1 March 2006, Peter Smyth had manifested the precise terms of the contract upon which he was prepared to sell the farm and, if Tipping J’s judgment correctly states the law, Octra was (and therefore the Chippers were) entitled to specific performance of Smyth’s promise to make an offer on those terms. 

101               I consider, however, that the jurisprudence in this area has advanced to the point where the holder of a first right of refusal which has fructified in the sense that the triggering event has occurred, and the terms upon which the vendor is prepared to sell are precisely defined, when faced with a vendor who refuses to make an offer, and upon demonstrating that he or she is otherwise ready and willing to perform his or her obligations in accordance with those terms, is entitled not merely to an order that the vendor make the appropriate offer, but to an order requiring the vendor to make the conveyance, on compliance with the terms.  I do, of course, confine that generalisation to a first right of refusal expressed as appears in the lease in this case, namely, where the vendor promises that the holder shall have a first right of refusal for a price, and on conditions, which are sufficiently identified.  As I read the authorities, the law now regards the holder of a first right of refusal in such a situation in the same way as it would regard the grantee of an option faced with a refusal by the vendor to convey the subject property. 

102               The starting point in contemporary English law is the judgment of the Court of Appeal in Pritchard v Briggs [1980] Ch 338.  The facts were rather unusual, in that the freeholders, Major and Mrs Lockwood, had executed two separate agreements with different people in relation to the same land.  They sold some adjoining land to the predecessors in title of Mr and Mrs Briggs under an agreement which contained the following provision in relation to the land in question:

The vendors … do hereby … covenant … that so long as the purchaser shall live and the vendors or the survivor of them shall also be alive the vendors will not nor will either of them sell or concur in selling all or any part of the retained lands without giving to the purchaser the option of purchasing the retained lands and the fixtures and petrol pumps thereon at the price in the case of the retained lands of ₤3,000 and in the case of the fixtures and the petrol pumps of a valuation to be made in accordance with clause 3 of the conditions of sale known as the Law Society’s Conditions of Sale (1934).

Many years later, the Lockwoods granted a tenancy of the land in question to Mr Pritchard under an agreement which contained the following provision:

The landlords … hereby covenant with the tenant … as follows: …That if the tenant shall … after the death of the survivor of the landlords desire to purchase [the retained lands] and shall before the expiration of three months of the death of the said survivor give notice in writing to the personal representatives of the said survivor … then the landlords hereby covenant so as to bind their respective estates that the personal representatives of the said survivor will upon expiration of such notice and upon payment of the sum of ₤3,000 … convey the said property … to the tenant in fee simple.

Although described as an option, the covenant with the Briggs’ predecessors was in the nature of a first right of refusal in the sense that it lay dormant until the freeholders took steps to sell the land.  On the other hand, the covenant with Pritchard was a true option, in that, for a period of three months after an event which had to happen at some stage, he could by his own act, and without any further assent of the personal representatives of the surviving Lockwood, bring a contract of sale into existence.  Both covenants were registered under the Land Charges Act 1925 (UK).

103               Mrs Lockwood died before her husband.  In October 1971, Major Lockwood had become infirm to the extent of being unable to manage his own affairs, and an order was made under the Mental Health Act 1959 (UK) with respect to his estate.  There were certain proceedings in the Court of Protection, the details of which I need not relate; but the result was that, in August 1972, Lockwood’s receiver entered into a contract for the sale of the land to the Briggs.  However, the contract had not been completed when, in January 1973, Lockwood died.  Within the 3 months specified in his agreement with the Lockwoods, Pritchard served a notice on Lockwood’s personal representatives purporting to exercise his option.  The question for the court was whether the Briggs, under their executed but uncompleted contract of sale, or Pritchard, under his option, were entitled to the land.

104               The Court of Appeal held, in effect, that, in order to defeat Pritchard’s registered option, the Briggs had to establish that their right of pre-emption (ie their first right of refusal) constituted an interest in land with priority over Pritchard’s option.  Each member of the court held that it did not.  A majority – Templeman and Stephenson LJJ – however, held that, had the event which triggered the Briggs’ right to be offered the land occurred before the Lockwood’s death, the Briggs would have had priority.  Templeman LJ said ([1980] Ch at 419):

If the … [Briggs’ covenant] had provided that Major and Mrs Lockwood would not sell in their lifetime or grant an option to purchase to purchase after their death without first offering the retained lands to [the Briggs] …, then the grant of Mr Pritchard’s option in breach of the terms of the right of pre-emption would have converted the Briggs’ right of pre-emption into an option and conferred on the Briggs an equitable interest in priority to the equitable interest conferred on Mr Pritchard by his option.

What is significant for present purposes about his Lordship’s analysis is that an act in breach of the contractual term providing for a right of pre-emption triggered that right and that thereupon the holder of the right became the grantee of an option.  His Lordship said ([1980] Ch at 418):

Thus the relationship of vendor and purchaser could not be established unless the Lockwoods chose to offer the retained lands to the holder of the right of pre-emption or, in breach of covenant, contracted to sell the retained lands to a third party without first offering the lands to the option holder ….

In a lengthy judgment, Goff LJ concluded that the holder of a right of pre-emption did not, on the occurrence of the triggering event, become the holder of an equitable interest in the land.  Having read that judgment and also the judgment of Templeman LJ, Stephenson LJ said ([1980] Ch at 423):

… what is granted as a right of pre-emption … is  only properly called an option when the will of the grantor turns it into an option by deciding to sell and thereby binding the grantor to offer it for sale to the grantee.  That it thereby becomes an interest in land is a change in the nature of the right to which, unlike Goff LJ, I see no insuperable objection in logic or principle.  And, as I understand his opinion on this point, its consequences would be that a right of pre-emption could never be enforceable against a successor in title whether it is registered or not.

I accordingly prefer the opinion of Templeman LJ on this point.

I am not so much concerned with the question whether the Chippers, as the holder of the first right of refusal, had an interest in land as such.  I am concerned with the question whether the offer of the land for sale to Red Valley, and the execution of a (varied) contract in that behalf, effectively converted the Chippers’ rights into an option.  If I were to follow Pritchard v Briggs, I would hold that they did.

105               In Kling v Keston Properties Ltd (1985) 49 P & CR 212, the owner of the land had entered into a tenancy agreement which contained the following provision:

It is agreed that in the event of [the landowner] wishing to sell the garage on a long lease you will have the option to buy it first on the basis stated in the letter of agreement between you and our clients dated April 11, 1980, to the terms of which this agreement is subject, before possession is acquired to sell to another party.

Some time later, and without notice to the tenant under the agreement, the landowner let the land under a 99-year lease.  The tenant sued on the provision set out above.  Vinelott J set out lengthy passages from the judgments of Templeman and Stephenson LJJ in Pritchard v Briggs, and concluded (at 217):

Applying these principles to the instant case, it is, I think, clear that the right of pre-emption became an option and created an equitable interest in the garage not later than the moment when the agreement for the grant of a lease was executed.  A vendor can hardly evince a desire to sell land more clearly than by contracting to sell it.

The tenant obtained specific performance.

106               In Tuck v Baker [1990] 2 EGLR 195, land was sold under a contract which, for the next 21 years, effectively gave the vendors a right of pre-emption to re-purchase the land, should the purchasers wish to sell.  The relevant provision in the sale agreement was expressed as a negative covenant not to sell or dispose of the land unless the freehold had first been offered for sale to the vendors, and the vendors had either refused that offer, or had failed to accept it within two months.  In the facts of the case, the purchasers did make such an offer, but they withdrew it before the expiration of the two-month period.  The Court of Appeal held that the purchasers were entitled to act in this way.  They did not in fact sell or dispose of the land to any other person, and were not, therefore, in breach of the term in the agreement.  The judgment is a short one and, by reason of the negative covenant in the agreement and the absence of any agreement to sell to a third party, it does not bear upon the question with which I am presently concerned.

107               In Bircham & Co Nominees (No 2) Ltd v Worrell Holdings Ltd (2001) 82 P & CR 34, the land in question was held under a long lease which contained the following provision:

If at any time during the term hereby created the Lessee shall wish to dispose of the term … it shall first offer the same in writing to the Lessors stating the price at which it is prepared to sell the same and the encumbrances (if any) subject to which the said term shall be assigned.  If the Lessors shall not within twenty-one days of the receipt of such notice accept the offer therein contained the Lessee may within six months thereafter … assign the said term to an approved assignee at a price equivalent to or greater than that at which it was offered to the Lessors, but shall not assign the same for any lesser sum than that at which it was last offered to the Lessors without again offering the same in writing to the Lessors at such lower figure.

The occasion arose when the lessee did desire to dispose of the remainder of the term.  It offered the term to the lessors, and the latter purported to accept the offer by correspondence.  For reasons which are not presently relevant, the court held that a binding contract did not come into existence.  Within the 21 days referred to in the above provision, the lessee purported to withdraw its offer (as it happened, its whole share capital had been acquired by third parties who desired to purchase the remainder of the term in preference to the lessors).  The lessors argued that they had an equitable interest in the term because of their rights arising under the provision of the lease set out above.  This argument did not prevail.  The Court of Appeal held that the provision in the lease did not prevent the lessee from withdrawing an offer made in compliance with it.  The provision merely prevented the lessee from selling the term to another within the 21 days.

108               In Bircham, the question was not whether the lessors obtained an equitable interest in the term upon the lessee doing something which would have amounted to a breach of the provision by which the first right of refusal was granted.  It was whether the lessee’s offer of the term in accordance with the provision gave rise to such an interest in the lessors.  Referring to the passage in the judgment of Templeman LJ which I have set out at par 104 above, Chadwick LJ, who delivered the main judgment, held that it did, but that it would lapse if the offer were validly withdrawn.  His Lordship said (82 P & CR at [33]):

It is, I think, implicit in those observations that an equitable interest would arise as soon as the grantors chose to offer the land to the grantees; that is to say, an equitable interest analogous to – and (to my mind) indistinguishable from – an interest under an option would arise when the offer was made, whether or not the offer was accepted.  But, of course, the interest would lapse if the offer were not accepted within the twenty one day period for which the offer was to remain open. (Emphasis in original.)

Chadwick LJ accepted that the observations on which he relied from the judgment of Templeman LJ were correct ‘in the context in which they were made’.  The context in Pritchard v Briggs, his Lordship pointed out, was one in which an offer made under the right of pre-emption could not be revoked or altered within 21 days.  His Lordship said (at [35]):

Where an offer is made upon terms that it will remain open for acceptance for a specified time it has the characteristic which has led the courts … to hold that the offeree obtains an immediate equitable interest in land.

His Lordship then referred to MacKay v Wilson, and continued:

An offer made on terms that it will remain open for acceptance for a specified time is indistinguishable from an option – indeed, to my mind, an offer made on such terms is properly described as an option.  But, where the offer is made on terms that it can be withdrawn at any time before acceptance, it does not have the characteristic essential to an option.  Such an offer is indistinguishable from any other contractual offer.  The offeror remains free, at any time before acceptance, to decide that he will not part with the land – see Tuck v Baker [1990] 2 EGLR 195.

The more relevant question in the present case, however, is whether the making of a contract to sell the land, in breach of the term under which a first right of refusal arises, would give rise to a situation equivalent to an option.  That was not the situation in Bircham, but Chadwick LJ’s discussion of the authorities appears to involve an acceptance of that proposition.  His Lordship relied upon the passage from the judgment of Goff LJ in Pritchard v Briggs which included the statement ‘… even if the grantor decides to sell and makes an offer it seems to me that so long as he does not sell to anyone else he can withdraw that offer at any time’ (82 P & CR at [30])  More significantly, perhaps, Chadwick LJ considered Kling v Keston, and described it as ‘an illustration of the principle to which Templeman LJ referred’ when he said that upon the making of a contract to sell to a third party in breach of the covenant in question, ‘the holder of the right of pre-emption would be entitled to buy and therefore entitled to an equitable interest’ (82 P & CR at [36]).  His Lordship distinguished Kling v Keston on the very footing that the case before him did not involve a contract to sell the term to a third party.

109               In Speciality Shops Ltd v Yorkshire and Metropolitan Estates Ltd [2003] 2 P & CR 31, what Park J referred to as ‘some form of pre-emption or first refusal right’ was given by a ‘comfort letter’ which his Lordship set out in full in an annexure to his judgment.  He invited ‘the reader who is unfamiliar with the case … to break from this judgment at this point and read the letter’.  Regrettably, it seems that, from every published form of his Lordship’s judgment, the annexure has been omitted.  Using the resources of the court, I was able to obtain a copy of the annexure, and I gave the parties an opportunity to make short written submissions on the subject.  The annexure is a letter dated 8 April 1998 from the plaintiff (a company which owned most of the subject land and had an option to acquire the balance) to the defendant (a company engaged by the plaintiff for project management on a major development on the subject land).  The letter was in the following terms:

Dear Brian

Further to our recent discussion, I confirm we are quite happy to provide you with this comfort letter offering you the opportunity of matching any offer we may attract and be minded to accept for our interest in the St Anne’s Wharf project, should we decide to sell to a third party and therefore relinquishing any future involvement in the project.

We would insist that you were able to confirm your offer, through solicitors, along with proof of funding, within 28 working days of us advising you of our intent and terms of any proposed sale.  We would expect you to exchange contracts within 20 working days thereafter.  In either case, if you did not do so, we would be entirely free to proceed with the original offer.

We concur it is inappropriate and unnecessary to build in pre-emption rights to our current contractual arrangements and believe this letter confirms the continued spirit of that arrangement.

Yours sincerely

D J Houghton

Managing Director

Speciality Shops PLC

Some years later, the plaintiff decided to put the land up for sale.  It gave the defendant an exclusivity period within which to come up with an offer (albeit that no offer had been made by a third party).  The defendant could not do so.  Then the plaintiff entered into negotiations with a third party which (on the third party’s insistence) were confidential.  Eventually a contract was entered into, and the defendant lodged cautions against the relevant titles.  The plaintiff commenced the instant proceedings to have the cautions removed.  The question was whether the defendant had an interest in land such as was necessary to sustain its cautions.  There was, it seems, a deal of urgency about the matter since the contract with the third party was due for completion.

110               Notwithstanding the cautious terms of the plaintiff’s letter of 8 April 1998, Park J approached the matter as though the letter was intended to have, and should be given, legal effect.  At the level of general principle, his Lordship identified three possibilities that might arise where there was a right of pre-emption (at [26]-[28]):

One possibility is that, upon the occurrence of the triggering event, the owner is obliged to offer to sell the property to the other party (the pre-emption holder), and the owner also must leave the offer outstanding and capable of acceptance for a specified period.  In that case, during the period when the offer cannot be revoked, the pre-emption holder does have an interest in the land.  He is in a position equivalent to an option holder: Pritchard v Briggs (supra) (in which the offer could not be revoked or altered for 21 days)…

A second possibility is that, upon the triggering event, the landowner must offer to sell the land to the pre-emption holder, but is not obliged to leave the offer open for any period.  So he can revoke it at any time, as long as he does so before the pre-emption holder accepts it.  That it is possible for an agreement to be of this nature was confirmed y the Court of Appeal in Tuck v Baker(supra).  In such a case the effect of the Court of Appeal decision in the Bircham case (supra) is that the pre-emption holder does not, on the triggering event, acquire an equitable interest in the land.  Chadwick LJ did, however, leave open the possibility that it might be different if the landowner did still want to dispose of the land.

A third possibility is where, upon the triggering event, the landowner is not obliged positively to offer to sell the land to the pre-emption holder, but rather he is obliged to notify the pre-emption holder of the situation. Leaving it for the pre-emption holder to make his own offer to purchase the land if he chooses.  If the pre-emption holder does choose to make an offer, only a very unusually worded agreement would provide that the landowner was bound to accept it.  In all normal cases one would expect the landowner to be free to accept or refuse the pre-emption holder’s offer.  Of course the landowner would not be entitled (as between himself and the pre-emption holder) to refuse the pre-emption holder’s offer and then go ahead with a sale to a third party on the same or worse terms.  But it seems to me that, if the landowner actually did that, the pre-emption holder’s remedy would be a claim for damages against the landowner for acting in breach of his contractual obligations under the pre-emption agreement.  I cannot see how the pre-emption holder could assert any sort of proprietary interest in the land.

Park J held that the case before him fell within the third category.  The letter of 8 April 1998 gave the defendant the opportunity to match an offer which the plaintiff had received from a third party.  Albeit that the plaintiff might have been in breach of contract for not giving the defendant that opportunity, the letter did not oblige the plaintiff to offer the land to the defendant such it would be the defendant’s act of acceptance which brought a contract of sale into existence.  The defendant was not, therefore, in a position analogous to that of the grantee of an option in the Pritchard v Briggs sense.  Speciality Shops was, therefore, not an example of a first right of refusal in the strict sense at all: what the defendant had was not the right to refuse (or to accept), but the right to make, an offer. 

111               In Tiffany Investments Ltd v Bircham & Co Nominees (No 2) Ltd [2004] 2 P & CR 10 there was again a long lease, and it contained a first right of refusal for the benefit of the lessors in the same terms as that in Bircham.  The lessees contracted to sell the term to a third party without first offering it to the lessors.  The actual arrangements out of which that contract arose were somewhat complicated, and need not be set out here.  Once he found that there was a contract, Sir Andrew Morritt V-C, who delivered the main judgment in the Court of Appeal, was obliged to deal with three arguments advanced on behalf of the lessees.  The first was that, under the provision, the lessees were not under a positive obligation to offer the term to the lessors.  His Lordship rejected that argument, holding in effect that the expression ‘shall first offer’ connoted an obligation.  The lessees’ second argument was that the lessors’ rights arose no sooner than the instant before the final disposition of the legal estate by assignment, and not at the instant before entering into a contract to assign.  His Lordship rejected that argument too.  He noted that the provision used the somewhat wide phrase ‘shall wish to dispose of the term’, as distinct from a narrower phrase such as ‘shall wish to assign the term’.  He added:

Further … if the relevant point of time is immediately prior to the execution of an assignment the likelihood of the right of pre-emption being defeated by an assignment to a bona fide purchaser for value without notice is considerably increased.

Thus, on the facts of the case, the Vice-Chancellor held that the contract by which the lessees agreed to assign the term to a third party triggered the lessors’ right to be offered the term.

112               The lessees’ third argument in Tiffany Investments was that, even if a triggering event had occurred, no equitable interest arose.  However, counsel for the lessees –

… did not suggest that the decision of the majority in Pritchard v Briggs, considered without qualification by the Court of Appeal in Bircham & Co Nominees Ltd v Worrell, [did] not correctly formulate the principle to be applied ….(at [36])

Sir Andrew Morritt V-C relied directly on the passage in the judgment of Templeman LJ in Pritchard v Briggs which I have set out in par 104 above to conclude that, once the lessees contracted to sell the term, the lessors obtained an equitable interest therein.  His Lordship said (at [37]):

The consequence … is that the lessors as the holder of the right to pre-emption were entitled to buy the Lease and therefore entitled to an equitable interest in it.

113               At the level of the Court of Appeal, therefore, there is in England an unbroken and, with respect, coherent thread of authority to the effect that, where the grantor of a first right of refusal contracts with a third party to dispose of the land which is covered by that right, and does so without first offering the land to the holder of the right, the latter thereupon is entitled to a transfer as though the grantee of an option.  I use the word ‘land’, of course, as a compendious reference to any interest in land which is the subject of the first right of refusal.

114               The question of the nature of the holder’s interests under a first right of refusal has arisen a number of times since Pritchard v Briggs in New South Wales.  I have referred above to the lease in, and to and the facts of, Sterns Trading.  On the question whether the third party or its nominee had an equitable interest in the land, Kearney J said ([1988] NSW ConvR at 57,791):

… the [third party and its nominee] raise in their cross-claim against the [lessee] the assertion that the [nominee] has an equitable interest in the land, and that any breach of the negative stipulation effecting [sic] the [lessee’s] rights is properly to be compensated in damages as they would represent an adequate remedy.  However, it seems to me that, although prior to the granting of the option it may be accepted for purposes of argument that the [lessee’s] right under the pre-emption clause did not create any equitable interest in the land, at the moment of the grant of option this right was, in my view, transformed from a mere contractual right into a right involving an equitable interest in the land.

His Honour referred to the judgment of Stephenson LJ in Pritchard v Briggs and continued (at 57,792):

The consequence is that in my view the creation simultaneously of equitable interests in favour of the [lessee] and of the [third party] … meant that there were competing equities, neither prior in time to the other, but of which the [lessee’s equity] is to be preferred as being the better equity, particularly on the basis that the equity of the [third party] was taken with knowledge and notice of the existence of the immediate creation of the [lessee’s] equitable interest.

115               In Walker Corporation Pty Ltd v W R Tatman Pty Ltd (1990) 20 NSWLR 624 premises were let under a lease which contained the following term:

If at any time during the term of this lease the Landlord shall desire to sell the premises he shall not enter into any Contract of Agreement for such sale unless prior thereto he shall:

(a)      Give to the tenant notice of his intention so to sell and shall offer the demised premises to the tenant on the same terms and conditions and at the same price as he is willing to offer the demised premises to a third party …

The lease proceeded to set out detailed provisions as to what should happen next, including specification of the period during which the lessor was required to hold the offer open.  Without making such an offer to the lessee, the lessor entered into a contract to sell the premises to a third party.  The lessee lodged a caveat claiming an equitable interest in the premises.  Brownie J noted that the grant of an option created an equitable interest in land, but held that the circumstances were not such as to amount to an option.  His Honour considered a number of authorities, including Mackay v Wilson, Woodroffe v Box, Sterns Trading and Pritchard v Briggs. As to the latter, his Honour noted that the judgments of the Court of Appeal had been the subject of academic criticism, and ultimately aligned himself with Goff LJ, rather than with the majority in that case.  He held that the lessee did not, in the circumstances, have a caveatable interest.

116               The matter was touched on by Santow J in Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321 but, because his Honour found that there had not been, in the facts of the case, a breach of the term in the lease giving the lessee a first right of refusal, the point was moot.  By way of obiter, his Honour opined that, until the triggering event occurred, the holder of the right would not have an interest in land but, on the occurrence of that event, such an interest would arise (36 NSWLR at 342-343).  His Honour disagreed with the view of Brownie J in Walker Corporation, and expressed a preference for the majority judgments in Pritchard v Briggs.

117               In Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510, there was an agreement between interests representing the owner of the subject land (referred to as ‘the Bank’) and the defendant for the demolition of buildings on the land and for the creation of plans for a major residential development on the land.  A provision of the agreement was as follows:

If the Bank decides at any time … not to proceed with the Project, then it will allow Multiplex a first right of refusal … either to purchase the Site or to arrange for a third party to purchase the Site at a price and upon terms acceptable to the Bank in its absolute discretion.

In the facts of the case, the Bank had decided not to proceed with the project, an event which Young J held triggered the operation of this provision.  As to whether an interest in property was thereby created, his Honour referred to the unreported English judgment of Oliver J in Imperial Chemical Industries Ltd v Sussman (unreported, Chancery Division, Oliver J, 28 May 1976) as providing ‘the clue as to the real distinction’.  Young J continued (36 NSWLR at 524):

If, on the true construction of the document, … one can see that contingently or unconditionally the proprietor of property has put it out of his or her control to prevent the grantee from acquiring the property, then a proprietary right is conferred on the grantee.  If, however, the right of the grantee only extends to impose a personal obligation on the grantor to make an offer, then there is no proprietary right conferred.  As Sappideen and Butt say in their work on the Perpetuities Act (1986) … “A right of pre-emption differs from an option in so far as the grantor of an option has parted with his freedom of alienation and is obliged to sell to the grantee at the request of the latter”.

Young J considered the judgments in Walker Corporation and Transfield Properties, and came to the view that the majority opinion in Pritchard v Briggs should be followed.  His Honour continued (36 NSWLR at 526):

That is, I should accept the view that whilst a right of pre-emption or right of first refusal does not per se constitute an interest in land, it may be in certain circumstances that one can say that the grant of such right together with contingencies which have happened will mean that there has been by those combined actions the grant of an option which does constitute an interest in land.

Young J held, on the facts, that the defendant’s right ‘was only one to be given the opportunity to make an offer.’  It followed that the defendant never had an interest in land.  (36 NSWLR at 531-532)

118               Jonns v Kim Seong Tan (1999) 9 BPR 17, 113 was an interlocutory judgment of Santow J where premises were held on a lease which contained the following terms:

1.      Should the lease premises be available for sale during the term of this lease, including any option periods, the Lessor agrees to grant to the Lessee a first right of refusal to purchase the lease premises.

2.      Such right of refusal shall be on the same terms as any offer to sell to any other person or company and will be open for acceptance by the Lessee for a period of 14 days from the date of offer by the Lessor.

During the currency of the lease, the lessor granted an option to purchase to a third party.  Santow J considered Sterns Trading, Walker Corporation, Beneficial Finance and his Honour’s own judgment in Transfield Properties.  His Honour said that the balance of opinion at single Judge level in NSW was that a triggering event under a first right of refusal conferred an equitable interest in land.  While there is no doubt but that his Honour was correct in that observation – and would be correct if he made a like observation today – since his judgment was interlocutory, and since he was able to rely alternatively upon an assumed state of affairs in which the lessee’s arguable title to relief was a mere equity, I shall treat his Honour’s judgment as a point of consistency rather than a building block in the establishment of the jurisprudence as such.

119               I mention in passing the judgment of the NSW Court of Appeal in Goldmaster Homes but, because of the undeveloped state of the contractual terms in that matter, the judgment does not grapple directly with the issues with which I am here concerned.

120               In Sahade v BP Australia Pty Ltd (2004) 12 BPR 22, 149, land was held under a lease which contained the following provision:

The Lessor covenants with the Lessee that should the Lessor at any time during the occupation of the premises by the Lessee … receive an offer to purchase the demised premises … and the Lessor desires to accept such offer; or should the Lessor during any such time make an offer to sell the demised premises … the Lessor shall give the Lessee notice in writing of such offer ….  The Lessee shall have the first option to purchase the premises … by giving written notice to the Lessor of its intention to purchase the said premises at the same price and on the same terms of any such offer, such notice to be given by the Lessee to the Lessor within twenty-one (21) days of receipt by the Lessee of notice of such offer.

Having notified the lessee that it was negotiating the sale of the land to a third party, the lessor entered into a deed of option with the third party which was specifically subject to the lessee’s first right of refusal as above and which granted the third party an option to purchase the land for a price, at a time and on conditions which were set out therein.  The lessor then sent to the lessee a letter enclosing a copy of the deed, stating that it contained the terms which it desired to accept.  Within 21 days, the lessee wrote to the lessor purporting to accept the offer to purchase the land on the terms and conditions set out in the deed.  The third party contested the lessee’s right to accept any such offer, and maintained that the first right of refusal would be relevant if and when the third party exercised its option.  Some time later, the third party nominated another to exercise its option (which was its right), and the nominee purported to do so.  The lessee did nothing within 21 days after being notified of those events, but purported to nominate another to purchase the land under its original letter purporting to accept what it characterised as the lessor’s offer.

121               Campbell J held that the lessee’s original letter was an effective exercise of its first right of refusal, whereby it was entitled to require the lessor to grant it an option to purchase in the same terms as that agreed to with the third party.  As to the priority of the lessee (or its nominee) against the third party (or its nominee), his Honour said (at [43]):

In my view Pritchard v Briggs ... is right in deciding that a right of first refusal can transmute from a merely contractual right to a right which confers an equitable interest in land, when the conditions for exercise of the right of first refusal have all been satisfied. An equitable interest arises in land which is the subject of an option to purchase because the grantor of the option can, in at least some circumstances, be deprived of that land without there being any further action or decision on his part. In that situation, he cannot in conscience regard the land as being completely his own. When the conditions for exercise of a right of pre-emption have arisen, the grantor of that right of pre-emption can likewise be deprived of his land without any further action or decision on his part. Further, such a situation is one where specific performance is capable of being awarded, to require the grantor of the right of first refusal to perform his agreement. While the availability of specific performance might not be the only test for whether one person has an equitable interest in land of another, it provides one test for when such an equitable interest exits.

His Honour referred to the judgment of Kearney J in Sterns Trading, and continued [at 46]:

That reasoning is directly applicable in the present case. It follows that, from the moment the Parkview Option Deed came into existence, [the lessee’s] right of pre-emption under Clause 11 of the Lease transmuted into an equitable interest in the land, and furthermore was an equitable interest which had priority over [the third party’s] rights under [its option deed].

122               In the hearing before me, the respondents gave particular emphasis to Pata Nominees Pty Ltd v Durnsford Pty Ltd [1988] WAR 365.  There, land was held under a lease which contained the following provision:

… in the event of the Lessor being desirous of selling the said land the Lessee shall (after the persons particularised in Item 5 of the Schedule hereto) have the second right of refusal to purchase the said land at the price and upon the terms and conditions which the Lessor shall stipulate as applicable to the sale.  If the lessee shall not exercise that right in writing within ten (10) days of being notified in writing by the Lessor then the Lessor shall as between the parties hereto have an unfettered right to sell the leased premises.

The lessees lodged a caveat claiming interests in the land which included those said to arise under that provision.  During the currency of the lease, the lessor received an offer from a third party to purchase the land for the sum of $850,000.  A contract to that effect was entered into.  Next in time, the lessor notified the lessees that it desired to sell the land, and it offered the land to the lessees (subject to the rights of others who had prior rights of refusal) for the sum of $850,000.  The lessees did not accept that offer.  They were requested to withdraw their caveat, but refused to do so.  Instead, they commenced proceedings in which they asserted that the contract of sale between the lessor and the third party was in breach of their right of refusal under the lease.  Burt CJ, who gave the main judgment in the Full Court, said that the lessees’ case must be understood –

… to be asserting [Lessees] that the [Lessor] must now renew its offer, so enabling the appellants to accept it so that any right to the land acquired by the [third respondent] under its contract is destroyed for the reason that “its interest in the Land (if any) is conditional upon and subject to the [Lessees’] contractual right of refusal and to that extent has waived and postponed any priority to the Land as against the [Lessees] (at 369).

The lessees relied upon Pritchard v Briggs.  As to that case, Burt CJ said (at 372):

I can understand that a right of pre-emption, so-called, upon its proper construction may be a conditional option so that when the condition is satisfied there is a standing and by that time an unconditional offer to sell so that “the holder of the right of pre-emption would be entitled to buy and therefore entitled to an equitable interest”.  But for that to happen it would, I think, be necessary, as was the case in Pritchard v Briggs (supra) that the price and the other terms necessary to establish a completed contract to buy and sell be agreed upon and expressed within the provisions conferring the pre-emptive right.  If that be the case, then it may be, the condition being satisfied, that the holder of the pre-emptive right could accept what has then become the standing offer and so conclude an agreement which could be specifically enforced.  But that is not this case.  In this case, the right conferred was a right of refusal to purchase “the said land at the price and upon the terms and conditions which the lessor shall stipulate as applicable to the sale”.  So even if the lessor is desirous of selling so that the condition controlling the right is satisfied, there exists no offer which could, by acceptance, create a contract to buy and sell.  It would be necessary first for the grantor to stipulate the price and the terms and the conditions.  In other words, it would be necessary for the grantor first, in fact, to make an offer.  Without that it would not be the case that the grantee would be “entitled to buy”.

It is apparent that the requirement that the lessor stipulate the price at which, and the terms and conditions upon which, it desired to sell the land was critical in the Chief Justice’s conclusion that the point had not been reached that the lessees could, without further act by the lessor, accept an offer and call for a conveyance.  Although, in the facts of Pata Nominees, there had been a contract of sale executed with the third party, that circumstance was not defining under the relevant provision in the lease.  In this respect, the terms of cl 6(d)(ii) in the present case are relevantly different, in that the provision requires for its operation the existence of a price for which, and conditions under which, the farm is proposed to be offered to another.

123               With due respect to some of the submissions which were made in the present case, I do not think there is any inconsistency between Pritchard v Briggs and Pata Nominees.  In the latter case, Burt CJ accepted the law as stated in the former case, but distinguished it on the facts.  I accept that his Honour took a somewhat stricter approach to the identification of the price, and the terms and conditions, which would, when “stipulated’, trigger the right to refuse than is evident from more recent English and NSW authorities, but it must be remembered that the lessees’ case was that an equitable interest arose at the point of the lessor being desirous of selling the land, and before any relevant stipulation.  I should also say that the lessees’ position in Pata Nominees appears to have been regarded by Burt CJ as unmeritorious: they rejected the opportunity to buy the land for the very price, and on the same conditions, as the lessor proposed to sell to the third party, but –

… stood by, knowing that the contract which had been made was to be concluded by settlement and they maintained their caveat in the hope that that contract would fall through so, as they saw it, reviving their pre-emptive right ([1988] WAR at 374).

Manifestly, equity would not come to the assistance of the lessees in such circumstances.

124               I should refer also to the judgment of Warren J in Bob Jane which, although interlocutory, provides a further indication of the approach which Australian courts have taken to Pritchard v Briggs.  In that case, land was held under a lease which provided:

The Lessor which term shall expressly include its transferees, purchasers or assignees covenant and agree that in the event of the Lessor deciding to sell the freehold property of the demised premises same shall first be offered to the Lessee at the price and on the terms that the Lessor is prepared to sell the same to a bona fide purchaser and the Lessee shall have not less then thirty days within which to accept or reject such offer provided that the Lessor may enter into a contract of sale which is conditional upon the Lessee not exercising its right to buy the said property and further provided that the right to buy the said property shall not apply if the Lessor decides to sell the property by public auction.

The lessor purported to sell the property to a third party, and the lessee, upon becoming aware of that circumstance, lodged a caveat.  The proceedings before Warren J were commenced by the lessee, and the question for her Honour was whether the lessor should be restrained from going ahead with the registration of the conveyance to the third party.  She said that the issue for consideration was whether the lessee had more than a right of first refusal, and arguably enjoyed an option to purchase which constituted an interest in land.  Having considered the authorities to that date (1999), her Honour said ([1999] VSC 346,[19]):

In light of the provisions of cl 9 of the lease in the present matter and the facts of the three “trigger” events having occurred, namely, the decision to sell the premises, the decision upon a price and terms of sale and the fact that the vendor did not first offer to sell the property to the plaintiff at that price and upon such terms I am satisfied that it is at the very least arguable that the plaintiff has an interest in land.  I form this view on the basis of the New South Wales and New Zealand authorities.

Warren J considered the judgment of Burt CJ in Pata Nominees, particularly where his Honour said that no offer existed which could, by acceptance, create a contract to buy and sell, since the lessor had not stipulated the price, and the terms and conditions.  Warren J continued at [21]:

In the matter before me precisely such an event has occurred, namely, that the vendor or grantor has stipulated the price and the terms and the conditions and then proceeded to sell the property without first making an offer to the plaintiff.  I consider that there is no principle expressed in Pata Nominees that derogates from the approach adopted by the New South Wales and New Zealand authorities in support of my finding that the plaintiff has succeeded in making out at least an arguable case.

125               Returning to the facts of the present case, the Chippers had a right which, the authorities disclose, became the equivalent of an option once Peter Smyth acted in breach of the third sentence of cl 6(d)(ii) of the lease by contracting with Red Valley on 1 March 2006.  Necessarily, the terms of the contract under which the Chippers were entitled to exercise that assumed option were established.  Consistently with the authorities to which I have referred, I should regard the Chippers as no less entitled to specific performance than the grantee of an option in equivalent circumstances. 

126               By their solicitors’ correspondence of 26 and 30 May 2006, the Chippers purported to exercise the option which I have held they then effectively had.  The grantor refused to convey.  Subject to matters to which I next turn, the Chippers’ entitlement to specific performance would seem to be complete.

127               The next question is whether Red Valley’s interest arising under its contract to purchase the land stands in the way of the Chippers achieving the remedy to which they would otherwise be entitled.  It follows from my findings on the facts that the interest which Red Valley had in the farm – as against the Chippers – is to be given a priority date of 1 March 2006, not 19 September 2005.  It is, I consider, a situation in which the same event – the making of the variation on 1 March – gave rise to two competing equities, as did the granting of the option in Sterns Trading.  Like Kearney J, I consider that the equity of the grantee of the first right of refusal is the stronger, because that right, by definition, was to stand first in line if Peter Smyth chose to sell the farm for a particular price, and under particular conditions, and because Red Valley knew of the existence of that right and had actual or constructive knowledge of the fact that the grantee thereof had not been offered the farm for that price and under those conditions. This conclusion is, of course, based upon the principle in Manchester Ship, although given expression in the context of specific performance rather than an injunction.

128               Finally on the matter of specific performance, I consider the question of readiness and willingness.  The Chippers allege that they were, and had at all material times been, ready, willing and able to perform the purchasers’ obligations under the terms of the contract between Peter Smyth and Red Valley as varied on 1 March 2006.  In their pleadings, the respondents denied that allegation, but at the trial, they admitted that the Chippers were then able to perform.  That admission was, in my view, wisely made, as the Chippers had tendered a trust account cheque in the sum of $140,000, and had the benefit of a letter from their bank indicating a preparedness to advance the balance of the purchase moneys.  The respondents, however, made two points.  First, they said that the Chippers had not been ready, willing or able to perform the purchasers’ obligation under the contract immediately upon discovering the terms of the contract as varied (on 10 April 2006); and Red Valley in particular made much of the time which the Chippers allowed to pass between that event and their solicitors’ correspondence in late May in which they asserted their rights under the lease and tendered their cheque for the deposit.  It was said that, during this period at least, the Chippers were neither ready nor willing to be purchasers under the contract.  Secondly, the respondents contended that, even at the trial, the Chippers were neither ready nor willing to perform, not withstanding that they were able to do so.

129               A party who seeks specific performance of a contract will fail unless able to show that he or she is ready and willing to carry out such continuing or future acts as would be his or her obligation under the contract: Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 WLR 425, 432-433.  What is required is readiness and willingness to comply with the essential obligations:  Mehmet v Benson (1965) 113 CLR 295, 308; Green v Sommerville (1979) 141 CLR 594, 610.  It is suggested by Spry, Equitable Remedies, 6^th ed, 2001, p 218, that the time at which readiness and willingness is to be assessed is the time of the grant of the remedy.  It is suggested by Meagher, Heydon and Leeming, p 674, however, that the relevant time is the date when proceedings are commenced.  In support of their proposition, the latter authors refer to Gurney v Gurney (No 2) [1967] NZLR 922, 925, in which Gresson J notes that the proposition is ‘well settled’.  His Honour refers only to the judgment of Walsh J in the Supreme Court of Alberta in Evans v Norris (1912) 8 DLR 652, 667.  In that case the plaintiff had been in default under his then existing contractual obligations at the commencement of the proceedings, and tried to patch things up – including by attempting to show that he would be ready and willing in the future – during the pendency thereof.  The matter is not addressed specifically in Fry, Specific Performance, 6^th ed, 1921, but the author does state (at p 435) that ‘when [the plaintiff] seeks the performance of the contract … [he must] show … that he is ready and willing to do all matters and things on his part thereafter to be done.’  Consistently with this requirement, it is, subject to any statutory provision or rule of court to the contrary, necessary for the moving party to aver and prove readiness and willingness: Bahr v Nicolay (No 2) (1988) 164 CLR 604, 620.

130               In the present case, the Chippers did allege that they were ready and willing to perform their obligations under the contract.  Save for the deposit which they tendered before the commencement of the proceedings, what were those obligations?  Only one remaining obligation was the subject of any substantial submission by the respondents: payment of the balance of the purchase price.  The Chippers’ pleading should be taken as an allegation of readiness and willingness to make that payment.  It was not until about a month later that they had arranged finance for the purpose.  To the extent that readiness and willingness implies also ability (see Gurney [1967] NZLR at 925), I do not think that a party seeking specific performance of a contract needs to be able to perform a future obligation under the contract until the time arrives for performance.  I consider, therefore, that the Chippers’ demonstration of an ability to pay the balance of the purchase price on 10 August 2006 is sufficient to justify a finding that they are, and have at all relevant times been, ready and willing to perform their obligations under the contract.

131               The Chippers were both cross-examined on the general subject whether they were seriously prepared to undertake an interest commitment of the kind that would be involved in borrowing $1.3 m from their bank.  It seemed to be suggested that, if their bluff should be called by a favourable judgment in this proceeding, they might in effect go weak at the knees and decide not to proceed.  As a matter of fact, I am satisfied that the Chippers made their offer to purchase the farm, and arranged finance for that purpose, only after careful consideration of the commitment thereby involved.  I do not, however, need to go any further into such matters, since the only relevant obligation, as yet unperformed, which would be required of the Chippers, would be to pay the balance of the purchase price.  I do not believe that the respondents have any legitimate interest in questioning the Chippers’ capacity to make the required repayments and otherwise to comply with such terms as may be imposed upon them by their bank.

132               As to the position subsisting between 10 April 2006 and 26 May 2006, as I have stated above, I do not believe that lack of readiness or willingness at that stage should be regarded as a proper basis for declining to order specific performance now.  On the facts as I have found them to be, over that period Peter Smyth was in breach of his contract with Octra (as trustee for the Chippers).  Subject only to the suggestion that the Chippers might have lost their cause of action by delay, I cannot see how the question of their readiness and willingness to perform future obligations under the contract arose at that stage at all.  Once the proceedings were commenced on 13 July 2006, the Chippers’ title to relief might have been affected by past breaches of the contract on which they sued, but more were alleged.

133               The way the argument was put particularly on behalf of Red Valley was more in the way that one might expect to receive a submission from a party alleging laches.  I would deal with such a submission at two levels.  First, I would hold that the period which passed between 10 April and 26 May 2006 was no more than was reasonably necessary for the Chippers to absorb the full import of the variation to the contract between Smyth and Red Valley of which they had become aware, and to take legal advice on the matter.  As to the latter, I consider that the legal situation which confronted the Chippers and their advisers on and after 10 April 2006 was complex to a considerable degree.  There are several factors about the present case which make it more than a straightforward situation in which a vendor has contracted with a third party in breach of a pre-emption clause in a lease.  Secondly, it is not suggested that Red Valley was prejudiced in any way by the passage of time between those two dates.  I accept, of course, that Red Valley was concerned to bring its on-sales to completion, but nothing in evidence suggests that anything more than the execution of contracts had occurred in that regard, and I note that Red Valley did not itself pay the second installment of the deposit due under the contract with Smyth, due on 31 May 2006, until well after the commencement of the present proceeding.

134               For the foregoing reasons, I find that the Chippers are and have been ready and willing to perform the purchasers’ side of the contract which, by the exercise of their first right of refusal, they wish to adopt.

135               It follows that the Chippers should succeed on their claim for specific performance.  The contractual obligations which Peter Smyth will be ordered to perform are those of the vendor under the contract between himself and Red Valley as varied on 1 March 2006.

Conclusion

136               In a number of respects, the parties should have the opportunity to address me on the terms of the orders which ought to be made in the light of my reasons as set out above.  For their part, the Chippers might consider the impact of their success in their claim for specific performance upon their claim for a declaration as to their entitlement to the extended term under the sub-lease and upon their claim for damages.  Both the Chippers and Peter Smyth might consider what should be done about any provisions in the contract which may have been, in effect, overtaken by the passage of time, such as the date for settlement.  The Chippers should consider what they want to do about condition 10.  There may be other matters of detail which need to be addressed.  Both parties should turn their minds to the terms of the order for specific performance which would be appropriate.  Subject to such submissions as are made, I would be disposed to specify a date by which Smyth will be required to take the action to which the order relates.  Those parties should, of course, take into account the likely mechanics of a transfer of the registration of the farm from Smyth to the Chippers.

137               I shall also give the parties an opportunity to address me on the question of costs.

138               As I have said in these reasons, the fourth respondents did not participate in the trial.  I expect to be addressed on the terms of any order proposed by, or against, those respondents.

Associate:

Dated:         1 December 2006