Goldmaster Homes Pty Limited & Anor v Johnson

[2005] HCATrans 302

[2005] HCATrans 302

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S244 of 2004

B e t w e e n -

GOLDMASTER HOMES PTY LIMITED

First Applicant

ROCKY SCARCELLA

Second Applicant

and

KEITH NORMAN JOHNSON

First Respondent

JOHNSON & JOHNSON REAL ESTATE PTY LIMITED

Second Respondent

HILLS DEVELOPMENT CORPORATION PTY LIMITED

Third Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 29 APRIL 2005, AT 11.40 AM

Copyright in the High Court of Australia

__________________

MR V.R.W. GRAY:   May the Court please, I appear on behalf of the applicants.  (instructed by Corporate & Civil Legal)

MR F. GLEESON:   Your Honour, I appear for the respondents.  (instructed by Phillips Fox)

GLEESON CJ:   Yes, Mr Gray.

MR GRAY:   Your Honours, the application before the Court is for leave to appeal in relation to issues arising from a contract which was contained in a letter sent by the respondent to the applicants and signed as accepted and faxed back.  The circumstances in which it arose were summarised by the trial judge at pages 7 and 8 of the application book, commencing halfway down paragraph 16 of his Honour’s judgment and concluding by setting out the terms of the letter in paragraph 19 on pages 8 and 9.  The particular matter which is the subject of the present application arises out of clause c) on that letter which appears at page 9, line 26, of the application book.  It was a provision saying:

We undertake to give you right of first refusal on our land to be developed at Green Road, Kellyville.

GLEESON CJ:   Now, as I understand the findings against you, both at first instance and in the Court of Appeal, it was held that that was too vague to give rise to a binding obligation but, if it did give rise to a binding obligation, the binding obligation was complied with?

MR GRAY:   Yes, your Honour.  The position that we respectfully support and ask the Court to consider as warranting special leave to appeal is, first, that it is not too vague to be enforceable and, secondly, that in order to comply with the obligation given by this right of first refusal it was necessary for the grantor, putative vendor, to give to the grantee a document, a piece of paper, which the grantee could accept and thereby bring into force a binding contract between them.

CALLINAN J:   Mr Gray, is it correct that all of the land was subsequently sold within a relatively short period for more than the amount of money for which your client could have bought it?

MR GRAY:   There were two stages to the subdivision.  We wished, we say, to have exercised the right to purchase certain of the lots. 

CALLINAN J:   But were you not given a list with the list prices of all of the lots?

MR GRAY:   The trial judge found that we were given the list price.

CALLINAN J:   That is right.  There was a list with all of these prices and then, subsequently, were not all of the blocks on that list sold for more than the list prices?

MR GRAY:   Either higher or very comparable but, broadly speaking, slightly, at least, higher.

CALLINAN J:   So that your client had refused an opportunity to buy the land for less than it was subsequently sold.

MR GRAY:   If one looks at it in that way ‑ ‑ ‑

CALLINAN J:   How else would you look at it?

MR GRAY:   In our submission, providing a list price is not a satisfaction of the obligation to give the right of first refusal.  The core of the applicants’ ‑ ‑ ‑

CALLINAN J:   Are you saying that your claim was for damages?

MR GRAY:   Yes, your Honour.

CALLINAN J:   Well, what would your damages have been?

MR GRAY:   There was quite elaborate evidence about damage, but the basic quantification premise was that the applicants would have purchased a number of these blocks, would have developed them as house and land packages and sold them in a particular market and made a profit, and the quantification of the damages was based on the lack of opportunity to do that. 

On the question of performance of the obligation, could I remind your Honours that there is at least confirmation, we submit, of the applicants’ submission on this in the decision of Justice Fry in Birmingham Canal Company v Cartwright at page 57 of the authorities provided.  The relevant passages in his Honour’s judgment, we submit, are at page 51 of the list of authorities in the left hand column where there is set out the terms of the particular contractual promise ‑ ‑ ‑

GLEESON CJ:   What page in the judgment?

MR GRAY:   It is not quoted in the judgment, your Honour.  It was in this book of authorities.

GLEESON CJ:   Yes, I have the book of authorities.

MR GRAY:   Page 51 and on the left hand side of page 422 of the law report, halfway down the page, your Honours will see a passage commencing in inverted commas which was the contract there in question:

“that in case, he, the said James Offley, his heirs or assigns, shall at any time hereafter sell or agree to sell to any person or persons whomsoever the mines . . . he, the said James Offley, his heirs or assigns, shall and will at the same time offer to the said J.S. Rutter, his heirs or assigns, the mines and minerals lying and being in and under the said piece of land hereby conveyed, and give him and them the refusal of the same for the space of one calendar month . . . ” –

The passage to which I have just alluded in his Honour’s judgment appears at page 57 of that book of authorities, at page 434 of the report on the left‑hand page, about point 3.  His Honour says:

Upon the whole I think that, according to the true construction of the covenant, the offer ought to have been made in writing, and, for this reason, that the covenant appears to me to be a contract that a contract shall be made, and that the contract so to be made shall be one capable of being enforced. 

Now, in our submission, simply to send a price list is not a satisfactory performance of the obligation to the grantee, because it is not going to result in a contract which is then capable of being enforced.  In our submission, the proper course is to tender to the grantee, the person holding this right of first refusal, the terms of the contract on which ‑ ‑ ‑

GLEESON CJ:   You do not have to do it all at the one time, do you?  Can you not say, “I will sell it to you for X dollars”, on the basis that if the person says, “All right, I am interested in that”, you will send the draft contract?

CALLINAN J:   Or even, “I accept that, I want to buy for that”, and then the contract would just be a standard contract on 30 days or whatever it is.

MR GRAY:   In our submission, the preferable approach for the law to take is to require the tender of a formal document and, in particular, not to accept what has been described in some overseas jurisdictions as the normal haggling of the market over matters such as price.  In order to give an obligation of a grant of first refusal substance, so that the grantor is precluded from selling to any other party on terms different from the terms offered to the grantee, we submit that the law should require the grantor to tender to the grantee the terms of the contract which he is willing to enter into.

GLEESON CJ:   Suppose that X owns Blackacre and X gives Y a right of first refusal over Blackacre.  X says to Y, “A has offered to buy Blackacre for a million dollars.  Are you interested in buying Blackacre at that price?”, and Y says, “No”.  Full Stop.  Does that constitute a breach of the right of first refusal?

MR GRAY:   On the basis that the vendor sells to A for a million dollars?

GLEESON CJ:   Yes, I have assumed X is telling the truth.

MR GRAY:   In our submission, the true analysis should be that the vendor, X, would give to the grantee, Y, the contract, because until he sees the contract, he does not know the terms.  The million dollars might be payable in 20 years.

GLEESON CJ:   He knew enough, in my example, to say, “No, I am not interested”.

CALLINAN J:   And the trial judge accepted against you the evidence that your client had said the land was too expensive.

MR GRAY:   Yes, but, in my submission, that is one of those instances where, absent the formalities of a tender of the documents, it is merely a reflection of market haggling.  The problem, in our submission, is in this area.  First, the terms of the contract entail provisions other than price.  Terms such as a settlement date, when the period of money is payable, whether finance is provided – all those things are important components.  Simply to say to the purchaser, “Are you interested at a million dollars?”, does not disclose what other terms there may be.

GLEESON CJ:   The purchaser might respond to that by saying, “I might be.  It depends on the other terms”, or the purchaser might respond by saying, “Go and jump in the lake”.  And if the latter is the response, that is the end of it, is it not?

MR GRAY:   But, in my submission, if I offer to Bloggs land for a million dollars, it would be assumed, in the absence of any other disclosure, that I would be offering it on terms that were thought to be customary in the area at the time, that is, in Sydney, perhaps, settlement in six weeks time and 10 per cent deposit and things of that sort.  In my submission, we are dealing here with performance of a subsisting contract, that is, what is required of the grantor who has given a right of first refusal and, in our submission, performance of his obligations is not satisfied just by saying, “Are you interested at X dollars?”.  In our submission, one then has to say what is the right of the putative buyer, the grantee?  He should be given the opportunity to see the terms of the offer and that means whether it is on customary terms or whether it is on different terms and if the vendor, X, sells to somebody else, it is then possible to see whether there has been a breach or not of the granted right of first refusal.

CALLINAN J:   Do you make any attempt to prove that, for example, the terms of settlement were extended in any of the transactions that subsequently took place or that there were any particularly beneficial conditions which might, for example, have made the present value of the price much less than it did on the list?  Is there any attempt to demonstrate anything of that kind?

MR GRAY:   No, your Honour, the applicants put their case on the basis that simply sending a price list could never be an adequate performance.

CALLINAN J:   Well, did you have discovery and inspection?

MR GRAY:   There was a lot of examination of these documents in the context of quantifying damages.  There was at the trial evidence showing what each of the lots had in fact been sold for, how it compared and so on in the context of damages, but there was no attempt made, it was never part of the applicants’ case to say that any of these purchasers were given some peculiarly favourable terms.  So, in our submission, we come back to the proposition that a grant of a right of first refusal is by no means an unusual or rare commercial contractual arrangement.  The cases that have been before the courts in this jurisdiction where the question has arisen – it has been in a commercial context and all that has been referred to in one phrase or another is “a right of first refusal” or some adaptation of that phrase in very general terms. 

In our submission, in accordance with the principle in Upper Hunter County District v Australian Chilling and Freezing Company, the courts should endeavour, if at all possible, to give such contractual promises substance and enforce them and, in our submission, that can be done and authorities demonstrate that it can be done and it can be done by requiring,

amongst other things, that the grantor deliver to the grantee of this right a piece of paper capable of being accepted and thereby bringing into existence a binding contract between them.  In our submission, anything short of that is not a satisfactory discharge of the obligations of the promisor to give a right of first refusal. 

In our submission, the law should not disregard the realities of the market place.  If there is going to be haggling about price, there will be haggling about price, but it is necessary for the vendor to present a document capable of being accepted and, if it is rejected, he can present the same document to another person, who will accept it and bring into force a contract, but anything short of that, in our submission, is not requiring the promisor to give full substance to his commitment.  That is really the essence of the application, your Honour.

GLEESON CJ:   Thank you, Mr Gray.  We do not need to hear you, Mr Gleeson.

Having regard to the particular facts and circumstances of this case we think that there are insufficient prospects of success of an appeal to warrant a grant of special leave and the application is dismissed with costs.

AT 11.58 AM THE MATTER WAS CONCLUDED