Goldmaster Homes Pty Ltd v Johnson - [2004] NSWCA 144

No judgment structure available for this case.

CITATION: GOLDMASTER HOMES P/L & ANOR v JOHNSON & ORS [2004] NSWCA 144

HEARING DATE(S): 04/05/2004

JUDGMENT DATE:
4 June 2004

JUDGMENT OF: Mason P at 1; Bryson JA at 2; Stein AJA at 44;

DECISION: [2003] NSWSC 230 affirmed. Appeal dismissed with costs.

CATCHWORDS: CONTRACTS – offer and acceptance – option, first refusal – affirm finding of Brownie AJ that, on evidence of correspondence and conversation, there was no concluded contract for a right of first refusal – consideration of nature of right of first refusal and case law thereon – reject argument that should follow decisions in States of US – significance of observations in Woodroffe v. Box (1954) 92 CLR 245 and Mackay v. Wilson (1947) 47 SR NSW 315. D.

LEGISLATION CITED: Conveyancing Act 1919 Sched.3 s60

CASES CITED: Manchester Ship Canal Co v. Manchester Racecourse Co [1900] 2 Ch 352
Smith v. Morgan [1971] 1 WLR 803
Gardner v. Coutts & Co [1968] 1 WLR 173
Kellner v. Bartman (1993) 620 NE 2d 607
Abraham Investment Company v. Payne Ranch Inc. & Ors (1998) 968 SW 2d 518
Cortese & Ors v. Connors (1956) 135 NE 2d 28
DiMaria v. Michaels (1982) 455 NYS 2d 875
Tribble & Anor v. Reely & Ors (1976) 557 P 2d 813
Butler & Ors v. Richardson & Ors (1948) 60 A 2d 718
Barling & Ors v. Horn & Ors (1956) 296 SW 2d 94
Brownies Creek Collieries Inc. v. Asher Coal Mining Co. (1967) 417 SW 2d 249
Phipps v. CW Leasing Inc. (1996) 923 P 2d 863
Woodroffe v. Box (1954) 92 CLR 245
Mackay v Wilson (1947) 47 SR (NSW) 315
Smith v. Morgan [1971] 1 WLR 803

PARTIES :
Goldmaster Homes Pty Ltd and Rocky Scarcella - Appellants
Keith Norman Johnson - First Respondent
Johnson & Johnson Real Estate Pty Ltd - Second Respondent
Hills Development Corporation Pty Ltd - Third Respondent

FILE NUMBER(S): CA 40321/2003

COUNSEL: V. Gray - Appellants
F. Gleeson - Respondents

SOLICITORS: Corporate & Civil Legal - Appellants
Phillips Fox - Respondents

LOWER COURTJURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): 4432/1999

LOWER COURT
JUDICIAL OFFICER : Brownie AJ

40321/2003

MASON P
BRYSON JA
STEIN AJA
FRIDAY 4 JUNE 2004

GOLDMASTER HOMES P/L & ANOR v. KEITH NORMAN JOHNSON & 2 ORS

Judgment

1 MASON P: I agree with Bryson JA.

2 BRYSON JA: The appellants, plaintiffs in the Equity Division, appeal against the judgment for the defendants, now the respondents, with costs given by Brownie AJ on 25 March 2003. The proceedings were commenced in the District Court at Sydney on 18 January 1999 and later removed into the Equity Division. The appellants claimed damages for breach of a contract alleged in the following terms in para 9 of the Statement of Claim (p.4 of red appeal book):

9. By a contract made on or about 30th September 1996 (the “Contract”) between the plaintiffs or one of them and the defendants, the defendants agreed with the plaintiffs that the defendants would (inter alia) grant to the plaintiffs or one of them, or procure for the plaintiffs or one of them, a right of first refusal over the land.

3 Particulars of para 9 of the Statement of Claim include particulars to the effect that the contract was made by Mr Johnson, the first respondent, as principal and as agent for other respondents, that the contract was partly written, partly oral and partly implied, that in so far as the contract was in writing it was constituted or evidenced by the letter dated 30 September 1996 set out in Brownie AJ’s reasons, and that in so far as the contract was oral it was constituted by a telephone conversation between Mr Scarcella, the second appellant, and Mr Johnson on 30 September 1996. The particulars include: (p.5 of red appeal book)

(e) Insofar as the Contract was implied it was implied by the operation of law from the facts that, to the knowledge of both parties, the first plaintiff was a builder who would utilise the benefit of the grant to build dwellings on the Land which the first plaintiff would thereafter sell for profit and the terms of the Contract implied by law were implied to give business efficacy to the Contract.

(f) In consideration for the grant the first plaintiff was to construct a home on Lot 5, Kelbrae Close, Castle Hill at a reduced price. In addition the first plaintiff was to forego rights in respect of the property known as Lot 122 Homequest 2000 in favour of the defendants.

4 The land referred to was land at Green Road, Kellyville in the State of New South Wales (hereinafter “the Land”), of which the third respondent Hills Development Corporation Pty Ltd was then the registered proprietor. The Land was then under development by subdivision into 49 housing lots. The third respondent obtained Local Council’s development consents for six different stages of subdivision between June and September 1996, and obtained Council’s final development approval on 18 June 1997, leading to registration of deposited plans on 24 June and 28 July 1997. The third respondent commenced to market the land, presumably on terms conditional on registration, early in 1997, and entered into contracts of sale on various dates from March to May 1997.

5 The facts as found by Brownie AJ relating to the events in which, as the appellants alleged, a contract conferring a right of first refusal was entered into, appear in the following passages from paras 16 to 20 of the judgment: (p.33-35 of red appeal book)

16. … I find that the following events occurred on 30 September 1996: Mr Scarcella telephoned Mr Johnson and in substance asked that the arrangements that had been made for the making of progress payments in respect of the construction work at Kelbrae Close be changed, it seems in order to assist the first plaintiff with a cash flow difficulty being experienced; instead of there being two previous payments each of 50 percent of the contract sum paid, those payments having to be made at designated times, he sought five progress payments, each of 20 percent of the contract sum paid, now to be paid at different designated times.

17. Mr Johnson agreed to this change, saying that Mr Scarcella had him "by the balls." Mr Scarcella asked Mr Johnson to type up a letter and fax it to Mr Scarcella and Mr Johnson agreed to do this. Then Mr Scarcella raised a question of Mr Johnson taking an interest in the Exhibition Village project and said that he was involved. Mr Johnson said that this was the first time that he had heard of Mr Scarcella being possibly involved and said that if any money was to be paid to Mr Scarcella it would have to come out of the $50,000 that he had previously agreed to pay to Mr Morley or his interests.

18. A short time later Mr Scarcella telephoned Mr Johnson again, saying that he had spoken to Mr Morley and that he and Mr Morley had agreed that the $50,000 previously agreed to be paid by the Johnson interests to the Morley interests would now be apportioned so that the Morley interests would be paid $45,000 and the Scarcella interests $5,000. Mr Scarcella then said to Mr Johnson: "I want to have the right of first refusal over your land out over your blocks at Green Road. Put that in your letter too.”

19. Mr Johnson said, "If you pay the price, Rocky, I'll sell you anything." Mr Scarcella then told Mr Johnson what he wanted…to be set out in the letter and Mr Johnson then dictated a letter which was later that day typed out on the letterhead of the second defendant, signed by Mr Johnson, as managing director, and faxed to the first plaintiff. The letter was in these terms:

I trust the undertakings contained herein are sufficient to satisfy you and to enable the land sales venture at Homequest to proceed as originally planned.”

20. Mr Johnson also took steps to see that the transaction involving the Exhibition Village was promptly executed in a way that was satisfactory to him. Simplifying the account of what happened, he arranged for his solicitors to prepare a deed, one copy of which he was to execute and the other copy for execution by Mr Scarcella. He gave instructions for two of the second defendant’s employees, Messrs Bradac and Keenan to take one copy out to Mr Scarcella for execution. It is now common ground it was executed by Mr Scarcella on 1 October 1996. There is a question where it was executed but nothing seems to really turn on that.

6 As appears from the findings, particularly at paras.17 and 18, Brownie AJ found that three different arrangements were made, and the terms of the findings are to the effect that they were made discretely; first an arrangement varying the number of progress payments on the construction of the home at Lot 5 Kelbrae Close, Castle Hill, secondly an agreement relating to payment by interests related to the respondents to interests related to the appellants of $5,000, for the acquisition of an interest in land Lot 122 at the Homequest 2000 Exhibition Village project; (and the $5,000 was part of $50,000 payable to Mr Morley under some earlier agreement), and the third arrangement, which was referred to in the last sentence of para 18 and confirmed in para (c) of the letter of 30 September 1996, and related to the right of first refusal on the Land. As its own terms show, the letter was written confirmation of arrangements which had already been made; the letter evidenced those arrangements and the allegation in the particulars to the (alternative) effect that the contract was partly constituted by that letter is not supported by the terms of the letter or by Brownie AJ’s findings.

7 The second arrangement is more clearly expressed in para (b) of the letter of 30 September 1996 than it was in the Trial Judge’s findings relating to the conversation. That arrangement was carried out by a Deed, prepared by a solicitor representing interests related to the respondents, and executed on 1 October 1996, to which the parties were Goldmaster Homes Pty Ltd the first appellant as assignor and Johnson and Johnson Holdings Pty Ltd (not a party to this litigation) as assignee; the Deed according to its terms assigned the rights of the assignor under an agreement between the assignor and Homequest 2000 Exhibition Village Pty Ltd relating to the purchase of a parcel of land and construction of a cottage within that Exhibition Village. According to the terms of the Deed there was a consideration of $1, but there has been no dispute that the consideration of $5000 was actually satisfied in some way.

8 The findings of Brownie AJ are inconsistent with the appellants’ contention that the third arrangement (which relates to the right of first refusal) was made in consideration of entry into one or both of the other arrangements: the others were agreed orally before the third came under discussion, and nothing was said which made them interdependent. Nor is there anything in the letter which does so.

9 The judgment of Brownie JA continued: (pp.35-36 of red appeal book)

21. On the hearing, the defendants raised a number of separate grounds of defence, but their primary case is that the third defendant, acting through Mr Johnson, was always content to allow the plaintiffs to buy any of the lots in the Green Road land, if they paid the asking price. That is, they say that they did give the plaintiffs the right of first refusal but that the plaintiffs, in substance, rejected the land as being too expensive during November 1996, and thereafter did nothing further with a view to acquiring the land or any of it.

22 …

23. Mr Johnson says and I find that on 18 November 1996 he had a conversation with Mr Scarcella in which the latter complained that Mr Bradac had not been servicing him, Mr Scarcella, properly and had not been selling land in the Glenview Hills Estate to Mr Scarcella. The former complaint related to other dealings between the parties and their associates, but as to the latter complaint Mr Johnson replied that he had not yet priced the lots in the subdivision, but that he would price them as soon as possible and send to Mr Scarcella details of the prices fixed.

10 The judgment then in paras 24 and 25 dealt further with the events of 18 November 1996 and with Mr Johnson’s letter of 18 November 1996 which made it clear that he was not satisfied with several proposals Mr Scarcella had made and that he expected and hoped that Mr Scarcella would retain Mr Johnson’s organisation as estate agent for the sale of some land at Kellyville.

11 The judgment proceeds: (pp.38-39 of red appeal book)

27. I also accept the evidence of Mr Johnson that he priced the lots in the proposed subdivision at Green Road and made an appointment to see Mr Scarcella at that site on the afternoon of Friday 22 November 1996, but Mr Scarcella did not keep that appointment. Mr Johnson then returned to his office. He had previously arranged for a marketing proposal in relation to the land in the Gum Log and Rathmore Estate to be prepared and sent to Mr Scarcella and on the Friday afternoon he gave instructions to the effect that the prices list be sent off to Mr Scarcella, together with the marketing proposal.

12 At a later point the judgment proceeds: (p.40 of red appeal book)

32. The question then posed is whether the third defendant or the defendants, more generally, breached the obligation stated in paragraph C of the letter of 30 September 1996. As always, this document has to be considered individually and not by analogy or by reference to some preconception of what the term 'right of first refusal' or some similar expression has been held to mean in other cases. See generally Woodroffe v Box (1954) 92 CLR 245 at 256 to 258 . The plaintiffs submitted that it was necessary for the defendants to formally put an offer to the plaintiffs and to make it clear to the plaintiffs in effect that this communication was in the nature of an ultimatum, conveying clearly enough to the plaintiffs that they must say whether or not, and by reference to a draft contract, or some other document setting out all the appropriate terms, they wished to buy the land upon the terms upon which the defendants were proposing to sell it to others. The only authority cited for this was Gyurkey v Babler (1982) 103 Idaho 663 651 P2d 928 34 ALR 4d 119 .

33. Reading what was said in that case in the context of the contract there under consideration, as one must, I do not think that the case goes as far as the plaintiffs would like it to go. In particular it does not impose on the defendants, in the circumstances of this case, the need to go so far as to put a formal written offer to the plaintiffs which document contained all of the terms of the proposed contracts of sale. The parties involved here were business people, very experienced in buying and selling land suitable for development in the Kellyville and Castle Hill districts and they did their business together fairly informally.

34. When Mr Scarcella complained on 18 November 1996 that Mr Bradac had not sold or offered to sell the land of the subdivision, Mr Johnson replied by saying that the land had not then been priced but that he would price it promptly and in substance give Mr Scarcella that information.

13 The finding at para 35 that Mr Scarcella responded that the prices asked were too high is very fully and completely justified by passages in Mr Johnson’s evidence which Brownie AJ accepted, including the following: (p.132 of black appeal book)

Q. The position is, however, that Mr Scarcella did not accept your marketing proposal, did he?

A. When we spoke on the Monday/Tuesday, he told me my land was too expensive and that Morley would be selling all their houses.

Q. What I put to you is that your assertion in paragraph 55 that you had faxed Scarcella the price list is a very important part of your answer to Scarcella that he had been given and rejected the opportunity, is it not?

A. No, the important thing is that he and I discussed on the phone and he said it was too expensive and I moved on. He had plenty of time even to rethink it and come back to me and he never. Between November to March he never once came back to me.

14 The effect of the reasons given by Brownie AJ includes the following:

1. There was no finding that a contractual promise for consideration relating to a right of first refusal was made by Mr Johnson on behalf of the respondents, and the findings relating to the oral conversations do not support there having been any such contractual arrangement for consideration. The terms of the letter, which do not contain any expressions suggesting that the three arrangements were interrelated or formed one bargain in common, do not support any such conclusion either.

15 In my opinion the respondents were entitled to succeed before Brownie AJ on the ground that it was not established that any contractual arrangement for a right of first refusal was made. If the appellants were to succeed before the Court of Appeal it would be necessary for them to obtain further factual findings to a different effect; their counsel told the Court of Appeal that he was unable to take the matter beyond the findings made by the Trial Judge. For that reason the judgment of Brownie AJ should in my opinion be affirmed.

16 As there were extensive further submissions it is appropriate for consideration to be given to the question whether, if there was a contractual entitlement to a right of first refusal, there was any breach of that contractual entitlement.

17 There has been judicial consideration of what is meant by a right of first refusal in the Full Court of the Supreme Court and in the High Court of Australia. In Mackay v. Wilson (1947) 47 SR NSW 315 which related to an informal agreement for the sale of a business and grant of tenancy to the purchaser, the relevant provision was “First option for purchasing the property is hereby given to [Mr & Mrs E. H. Mackay] at £1,350.” After referring to the difficulty of determining the meaning of the words “First option” and to an agreement that they gave a right of pre-emption or the right of first refusal, K.W Street J said (at 325):

prima facie

Sharp v. The Union Trustee Co. of Australia Ltd.

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.

Pritchard

v. Briggs

Mackay v. Wilson

18 Observations in Woodroffe v. Box (1954) 92 CLR 245 in the judgments of Fullagar and Kitto JJ who formed the majority are of high importance for the approach which should be taken here. In that case the document conferring the right spoke of “… the right of first refusal to purchase the said premises …”. Fullagar and Kitto JJ reviewed extensively authorities relating to rights of pre-emption, variously expressed, including Mackay v. Wilson and said, at 257:

Mackay v Wilson

Manchester Canal Case

Scott v Skinner

19 At 258 their Honours said:

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.

20 These observations are of high importance when addressing the meaning and effect of the arrangement which the appellants contended was made.

21 On behalf of the appellants it was submitted that a contractual promise to confer a right of first refusal to purchase specific property is sufficiently certain to be enforceable, and that this is so notwithstanding the potential inconvenience in practice of the need to follow a procedure of making a formal offer before selling to someone else and notwithstanding that it is inherently difficult to express such a promise in precise terms. It was submitted that enforceability is assisted by an implied obligation to perform the promise in good faith.

22 It was then contended that the obligation to give a right of first refusal is an obligation to make an offer (necessarily a formal offer in writing) to sell the property not only at the same price but also on the same terms as some other proposing purchaser is prepared to agree to; with the consequence that the promisor cannot fulfil the obligation unless and until it identifies the terms, meaning all the terms on which it is willing to contract with a third party, meaning an identified third party who is willing to purchase the property. Counsel contended (and this argument appears to require) that one such offer of opportunity would not necessarily discharge the obligation; if the third party in view did not in fact enter into a contract, or failed to complete it, and the promisor later embarked upon a further sale, the need to offer first refusal would present itself again, perhaps a number of times. In a development which appears to me to be superfluous to the real needs of the argument, it was contended that changes in market conditions may make it the obligation of the promisor to renew an offer which had earlier been made in exactly the same terms, if there was some change of circumstances, for example, some alteration in the general level of market prices. Counsel sought to erect a high tower of implication on the slight foundation of the brief expression in para (c) of the letter.

23 In support of these submissions appellants’ counsel referred to several English decisions in which obligations in terms of “the first refusal” or similar obligations had been put in suit. Counsel referred to Manchester Ship Canal Co v. Manchester Racecourse Co. [1900] 2 Ch 352, [1901] 2 Ch 37 where the obligation was to give “the first refusal” and enforceability of the obligation was definitively established by its being scheduled to a statute. Counsel also referred to Smith v. Morgan [1971] 1 WLR 803, particularly at 808-809 (Brightman J) where the obligation related to “the first option of purchasing the said land …” Counsel also referred to Gardner v. Coutts & Co [1968] 1 WLR 173 (Cross J) in which the language of the obligation is even more remote from the present case and does not refer to a refusal, or first refusal.

24 Counsel submitted that the law on the subject of rights of first refusal is more fully developed in the United States, and that decisions in State Courts in the United States offer useful guidance on points where Australian authority is lacking. Counsel then referred to a number of decisions of Courts of American States.

25 In Butler & Ors v. Richardson & Ors (1948) 60 A 2d 718 (Supreme Court of Rhode Island) the right conferred was “… an option to buy” and procedure was spelt out which the Lessor was to follow “… if the Lessors shall have any offer for the purchase of said premises, which the Lessors are willing to accept.” The Lessor was to “give to Lessees an opportunity to purchase the said premises on the same term by notifying the Lessees in writing of such offer…”

26 In Cortese & Ors v. Connors (1956) 135 NE 2d 28 (Court of Appeals of New York) the right conferred was “… the first option to purchase the same under the terms at which it is offered for sale” and the Court regarded what had taken place as bargaining talk and not an offer to sell (at 29).

27 In Barling & Ors v. Horn & Ors (1956) 296 SW 2d 94 (Supreme Court of Missouri) the right conferred was referred to as “… the first opportunity to purchase the premises.”

28 In DiMaria v. Michaels (1982) 455 NYS 2d 875 (Supreme Court of New York Appellate Division) the right conferred was “… first option to buy said premises at a price to be agreed upon in the event the party of the first part places the premises for sale” and the Court was of the view (at 877) “That argument overlooks the fact that the term ‘first option to buy’ is a term of art, which implies that the price term is to be determined by the price at which the lessor offers the property to a third party.”

29 In Kellner v. Bartman (1993) 620 NE 2d 607 (Appellate Court of Illinois) the contractual entitlement was spelt out at length in the agreement conferring it, and explicitly required an offer in writing at the price and on the terms of the intended sale, with a long interval for acceptance or rejection, before sale to another person.

30 In Abraham Investment Company v. Payne Ranch Inc. & Ors (1998) 968 SW 2d 518 (Court of Appeals of Texas) the right conferred was “… the preferential right of purchase of the property … in the event of a sale of such a property” (at 522). The Court was of this view (at 524): “Preferential rights of purchase have a generally well-understood meaning within the business world that the right holder must be given an opportunity to purchase the property from the property owner on the terms offered by any third party.”

31 In Brownies Creek Collieries Inc. v. Asher Coal Mining Co. (1967) 417 SW 2d 249 (Court of Appeals of Kentucky) the right conferred was “… Lessee shall have the right of first refusal to lease said premises” and the Court said at 252 “A contract provision giving simply the ‘right of first refusal’ (as here), without any qualifying terms, means according to general custom and practice that the holder has the right to elect to take the property at the same price and on the same terms and conditions as those of an offer by a third person that the owner is willing to accept.”

32 In Tribble & Anor v. Reely & Ors (1976) 557 P 2d 813 (Supreme Court of Montana) the right conferred was referred to as “the first refusal under terms similar to that offered [by] any third party…” and procedure was spelt out dealing with the “… right of Lessees to meet any offer of any third party for ten (10) days after notice to Lessees in writing of intention or offer to sell to a third party.” The Court regarded this obligation as sufficiently definite for enforcement.

33 In Phipps v. CW Leasing Inc. (1996) 923 P 2d 863 (Court of Appeals of Arizona) the right conferred was [purchaser] “… has first right of refusal, in the event a contract to [purchase] the real property … is made and considered for actual sale by [vendor]”. The Court said at 866: “As a preliminary matter, we note that a ‘right of first refusal’ is recognized under Arizona law as a contractual right to require the owner ‘when and if he desires to sell a premises, to first offer the land to [the person given the right of first refusal] at the same price offered by the third person.”

34 Only in the last three of these cases is there any use of the expression “first refusal” or any closely similar expression, and in two of them the expression had an established meaning. In some American States it has been established by judicial authority, sometimes on the basis of known business custom, that references to a right of first refusal have an established legal meaning; whereas Woodroffe v. Box in the High Court of Australia shows that we are not free to take such a view. The assistance available from these cases is limited because each contractual document must be understood according to its own terms and standard forms are not followed. Decisions on documents referring to the right conferred as an option are of no value.

35 In the arrangement relating to the right of first refusal, according to its terms as established by the findings of Brownie AJ and para (c) of the letter, there is so little context that the exercise described in Woodroffe v. Box at 258 can hardly be undertaken. There is no reference to an option, to another purchaser, to the terms on which a sale is proposed, or to an offer to the purchaser or to an offer in writing. Nothing in the context sets the rights of the appellants in apposition to the rights of any other intending purchaser. The right conferred is a right of refusal, and the use of the word “refusal” invokes the question “refusal of what?” In my opinion the answer suggested by the context is refusal of an opportunity to buy the Land. There is nothing in the context which requires the opportunity to be in a high state of definition.

36 In my opinion the alleged promise could have been performed in various ways, but was sufficiently performed by giving Mr Scarcella an opportunity, in the context of a list of prices at which the respondents were genuinely willing to sell the land, to say whether he refused to purchase, or whether he wished to purchase. The obligation was completely discharged when Mr Scarcella refused, and with that event no further performance of the obligation was required, or was possible. The course which the respondents would have had to follow if Mr Scarcella had not made a definitive refusal does not need to be considered. Perhaps they would have had to tender an opportunity to buy, defined in some full way, and allow a reasonable time for response, or, if there was no response, for a constructive refusal. Further examination of this hypothesis is not required.

37 In my opinion there is no need to follow any highly defined or definable procedure in order to accord the appellants the rights which the right of first refusal would give to them. The Court is required to address the parties’ conduct and the events and come to a conclusion on whether the appellants were given a reasonable opportunity to refuse, or alternatively not to refuse but to indicate a wish to purchase the land; and whether the opportunity was an opportunity to make a first refusal, which it would be if no right to purchase by any third party had been created before the opportunity existed. A decision not to refuse but to purchase could conceivably be somewhat complex of expression, as it would be necessary to address what terms were involved; if the proposing vendor or for that matter the proposing purchaser put forward some terms in detail in addition to the price a close address to the facts might be required to ascertain when an agreement for sale came into existence. If the price is agreed, a bare contract incorporating the conditions of sale in Sched. 3 of the Conveyancing Act 1919 by the operation of s 60 of that Act can come into operation very readily. However that may be, a refusal, the right to make which is the right expressly conferred, can come into existence readily and unmistakably without the need for any high definition of the terms which are being refused. The person making the refusal chooses the terms and the circumstances in which he or she refuses.

38 A passage in the judgment of Brightman J in Smith v. Morgan furnishes an illustration of the manner in which, in my opinion, the right of first refusal operates, if contractually binding:

However, I reject the defendant’s submission that the plaintiff, should she wish to sell, is bound to offer the property at market value or at such value as the court may determine, as suggested by the points of counter-claim. Paragraph 1 of the second schedule to the conveyance says nothing whatever about market value and nothing about a reference to the court, even if the court were willing to accept such a reference. In my view it is implicit in paragraph 1 of the second schedule that a purchase, if it results from an offer, should be at a price acceptable to both parties. On that basis it appears to me that paragraph 1 can only mean one thing; that the obligation on the vendor, should she wish to sell, is an obligation to make an offer to the purchaser at the price and at no more than the price at which she is, as a matter of fact, willing to sell. If that offer is accepted by the defendant, then there will be a purchase at a figure which has been agreed upon. If the offer is rejected, then cadit quaestio.

39 The meaning of a right of first refusal and related concepts is not (as it is in some American States) established by judicial authority or by judicial knowledge of trade custom and does not have an established legal meaning. So to regard it in Australia would be an error, in view of the passage I have set out from the judgment in Woodroffe v. Box. In the context in which it is now found “first refusal” is as clearly a loose and colloquial expression as it ever is. The terms are so loose and colloquial that it could not be supposed that they would be employed in professionally drafted document unless the means by which effect is to be given to them are also carefully spelt out. There is no sign of careful use of language in the telephone conversation as found by Brownie AJ or in the terms of the letter of 30 September 1996; there is indeed no sign that careful consideration was given to the nature of the obligation to which those words referred. The brevity and imprecision of expression support the conclusion that no binding obligation was intended. If a binding obligation was intended there were obviously more details which needed to be established and expressed.

40 A refusal can of course take place in response to a highly defined proposal, but it can take place in any circumstances which the party refusing may choose, and can be made in a clear and unmistakable way without there being any proposal at all. The response made by Mr Scarcella to Mr Johnson after receiving a list of prices and lots was in my opinion unmistakably and in the most definite manner a refusal of an opportunity to buy the land. It is evident that Brownie AJ was of the view that, if the respondents were under any obligation with respect to the right of first refusal, they were not in breach of it as there had been a refusal, and in my opinion this view is correct.

41 On behalf of the appellant it was submitted to the effect that Brownie AJ hardly considered precisely what the respondents were required to do to perform their promise, or that if it is to be implied from paras 34 and 35 of the judgment that Mr Johnson did what he was obliged to do by saying that the land had not been priced as of 18 November 1996 but that he would price it promptly and give Mr Scarcella that information, the Trial Judge was in error in treating the obligation as defined by what Mr Johnson said. In my opinion, the Trial Judge did not commit the error suggested in this submission.

42 In their Notice of Contention the respondents claimed that if there was an agreement for consideration to confer a right of first refusal, the supposed consideration was illusory. It was contended that in fact Goldmaster Homes Pty Ltd had no rights in relation to the Homequest 2000 Exhibition Village project and Lot 122. Counsel for the respondents made submissions to the effect that it should be found that in fact the assignor had no interest in any such agreement with Homequest 2000 Exhibition Village Pty Ltd, that there was no such agreement, and that in so far as the second arrangement furnished consideration for the third arrangement, that consideration was illusory. Although these submissions were developed elaborately, there is no need to come to any conclusion on them. It was further contended that the appellant’s claim, predicated upon a loss of profit which would have been derived from a hypothetical development of 27 lots of the subdivision of the Land, had not been shown and should not be found to have been linked by causation with the alleged breach of contract. Again it is not necessary to come to any conclusion on this contention.

43 In my opinion the Court of Appeal should make this order: The appeal is dismissed with costs.

44 STEIN AJA: I agree with Bryson JA.

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Last Modified: 06/08/2004

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Woodroffe v Box [1954] HCA 22

Goldmaster Homes Pty Ltd v Keith Norman Johnson [2003] NSWSC 230

CITATION:	GOLDMASTER HOMES P/L & ANOR v JOHNSON & ORS [2004] NSWCA 144
HEARING DATE(S):	04/05/2004
JUDGMENT DATE:	4 June 2004
JUDGMENT OF:	Mason P at 1; Bryson JA at 2; Stein AJA at 44;
DECISION:	[2003] NSWSC 230 affirmed. Appeal dismissed with costs.
CATCHWORDS:	CONTRACTS – offer and acceptance – option, first refusal – affirm finding of Brownie AJ that, on evidence of correspondence and conversation, there was no concluded contract for a right of first refusal – consideration of nature of right of first refusal and case law thereon – reject argument that should follow decisions in States of US – significance of observations in Woodroffe v. Box (1954) 92 CLR 245 and Mackay v. Wilson (1947) 47 SR NSW 315. D.
LEGISLATION CITED:	Conveyancing Act 1919 Sched.3 s60
CASES CITED:	Manchester Ship Canal Co v. Manchester Racecourse Co [1900] 2 Ch 352 Smith v. Morgan [1971] 1 WLR 803 Gardner v. Coutts & Co [1968] 1 WLR 173 Kellner v. Bartman (1993) 620 NE 2d 607 Abraham Investment Company v. Payne Ranch Inc. & Ors (1998) 968 SW 2d 518 Cortese & Ors v. Connors (1956) 135 NE 2d 28 DiMaria v. Michaels (1982) 455 NYS 2d 875 Tribble & Anor v. Reely & Ors (1976) 557 P 2d 813 Butler & Ors v. Richardson & Ors (1948) 60 A 2d 718 Barling & Ors v. Horn & Ors (1956) 296 SW 2d 94 Brownies Creek Collieries Inc. v. Asher Coal Mining Co. (1967) 417 SW 2d 249 Phipps v. CW Leasing Inc. (1996) 923 P 2d 863 Woodroffe v. Box (1954) 92 CLR 245 Mackay v Wilson (1947) 47 SR (NSW) 315 Smith v. Morgan [1971] 1 WLR 803
PARTIES :	Goldmaster Homes Pty Ltd and Rocky Scarcella - Appellants Keith Norman Johnson - First Respondent Johnson & Johnson Real Estate Pty Ltd - Second Respondent Hills Development Corporation Pty Ltd - Third Respondent
FILE NUMBER(S):	CA 40321/2003
COUNSEL:	V. Gray - Appellants F. Gleeson - Respondents
SOLICITORS:	Corporate & Civil Legal - Appellants Phillips Fox - Respondents

LOWER COURTJURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	4432/1999
LOWER COURT JUDICIAL OFFICER :	Brownie AJ