Octra Nominees Pty Ltd v Chipper - [2007] FCAFC 92

FEDERAL COURT OF AUSTRALIA
Octra Nominees Pty Ltd v Chipper [2007] FCAFC 92
CONTRACT – lessee granted right of first refusal – sale of property to third party after lessee refused offer on same terms – subsequent variation of contract for sale – whether second offer of property must be made to lessee on varied terms – construction of right of first refusal – sale of land occurs upon entry into contract for sale, not upon conveyance –right of first refusal not revived by variation of contract for sale – otherwise commercial uncertainty may ensue – lessor’s entry into contract for sale not in breach of lease
WORDS AND PHRASES – “sale”
Federal Proceedings (Costs) Act 1981 (Cth)
Guardianship and Administration Act 1990 (WA)
Property Law Act 1974 (Qld)
Chipper v Octra Nominees Pty Ltd [2006] FCA 1633, reversed
Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Limited (1995) 36 NSWLR 510, considered
Chan v Dainford Limited (1985) 155 CLR 533, distinguished
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, cited
Mackay v Wilson (1947) 47 SR (NSW) 315, considered
Milner v Staffordshire Congregational Union (Incorporated) (1956) 1 Ch. 275, considered
Nationwide Produce (Holdings) Pty Ltd (in liquidation) v Linknarf Limited (in liquidation) [2005] FCAFC 129, cited
Walker Corporation Pty Ltd v W R Pateman Pty Ltd (1990) 20 NSWLR 624, considered
White Property Developments Ltd v Richmond Growth Pty Limited [1998] FCA 26, considered
Woodroffe v Box (1954) 92 CLR 245, applied
RED VALLEY PTY LTD (ACN 009 384 605) v CHRISTOPHER JOHN CHIPPER AND MELODY JANE CHIPPER, OCTRA NOMINEES PTY LTD (ACN 008 960 094) AND PETER CAMPBELL SMYTH (BY HIS ADMINISTRATORS DAVID ANDREW SMYTH AND ROBERT LANSELL AVERY)
WAD 369 OF 2006
OCTRA NOMINEES PTY LTD (ACN 008 960 094) AND PETER CAMPBELL SMYTH (BY HIS ADMINISTRATORS DAVID ANDREW SMYTH AND ROBERT LANSELL AVERY) v CHRISTOPHER JOHN CHIPPER AND MELODY JANE CHIPPER AND RED VALLEY PTY LTD (ACN 009 384 605)
WAD 375 OF 2006
TAMBERLIN, GYLES AND GILMOUR JJ
20 JULY 2007
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 369 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

RED VALLEY PTY LTD (ACN 009 384 605)
Appellant/Cross Respondent

AND:

CHRISTOPHER JOHN CHIPPER AND MELODY JANE CHIPPER
First Respondents/Cross Appellants

OCTRA NOMINEES PTY LTD (ACN 008 960 094)
Second Respondent

PETER CAMPBELL SMYTH (BY HIS ADMINISTRATORS DAVID ANDREW SMYTH AND ROBERT LANSELL AVERY)
Third Respondent

JUDGES:

TAMBERLIN, GYLES AND GILMOUR JJ

DATE OF ORDER:

20 JULY 2007

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The appeal is allowed.
2.The cross appeal is dismissed.
3.The declarations and orders made by Jessup J on 13 December 2006 are set aside and in lieu thereof the proceeding is dismissed.
4.The first respondents pay the costs of the appellant of the appeal and of the proceeding below.
5.The cross appellants pay the costs of the cross…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] FCAFC 92
Decision Date: 20 July 2007

CaseChat Overview and Summary

The case of Octra Nominees Pty Ltd v Chipper involved a dispute over the interpretation and enforcement of a right of first refusal clause in a lease agreement. The Chippers, as lessees, argued that the right of first refusal was breached when their landlords, the Smyths, agreed to sell the property to a third party without first offering the Chippers the opportunity to purchase it. The dispute reached the Supreme Court of New South Wales, which had to decide whether the clause was properly invoked and whether the Chippers were entitled to equitable relief.

The primary legal issue was the interpretation of the right of first refusal clause in the lease agreement. Specifically, the court had to determine whether the clause required the Smyths to offer the Chippers the opportunity to purchase the property before agreeing to sell it to a third party, even if the Chippers had previously declined to purchase the property under different terms. Another issue was whether the Chippers were entitled to specific performance or an injunction as a remedy for the breach of the clause.

The court held that the right of first refusal was indeed breached when the Smyths agreed to sell the property to a third party without offering the Chippers the opportunity to purchase it first. The court found that the clause required the Smyths to offer the Chippers the chance to purchase the property under the same terms as the third party, even if those terms were more favourable. The court also held that the Chippers were entitled to equitable relief in the form of specific performance, allowing them to exercise the right of first refusal. However, the court of appeal later found that the primary judge had erred in his construction of the clause and its application in the present circumstances, leading to the appeal being allowed and the dismissal of the Chippers' claims.

The appeal was allowed, and the cross appeal was dismissed. The orders made by the primary judge were set aside, and the proceeding was dismissed. The first respondents were ordered to pay the costs of the appeal and the proceeding below, while the cross appellants were ordered to pay the costs of the cross appeal. Additionally, it was declared that the first respondents did not have an interest in the property that would prevent the appellant from being registered as the proprietor or conveying its interest in the property. The first respondents were also ordered to remove a caveat from the property titles, with the orders stayed for 21 days to allow for potential discharge or variation applications.

Orders

Orders of the court

1. The appeal is allowed.

2. The cross appeal is dismissed.

3. The declarations and orders made by Jessup J on 13 December 2006 are set aside and in lieu thereof the proceeding is dismissed.

4. The first respondents pay the costs of the appellant of the appeal and of the proceeding below.

5. The cross appellants pay the costs of the cross respondent of the cross appeal.

6. It is declared that the first respondents do not have an interest in the property known as Glen Oban Farm comprising Certificates of Title numbered Volume 2118 Folio 712, Volume 2118 Folio 713, Volume 2118 Folio 714, Volume 2118 Folio 715 and Volume 2525 Folio 102 conferring on them a right to prevent the appellant either being registered as proprietor of that property or conveying its interest in that property.

7. The first respondents take all steps necessary to remove forthwith caveat number J730409 from Certificates of Title numbered Volume 2118 Folio 712, Volume 2118 Folio 713, Volume 2118 Folio 714, Volume 2118 Folio 715 and Volume 2525 Folio 102.

8. Orders 6 and 7 are stayed for 21 days and the first respondents have leave to apply to discharge or vary orders 6 and 7 within seven days.

1. The appeal is allowed.

2. The cross appeal is dismissed.

3. The declarations and orders made by Jessup J on 13 December 2006 are set aside and in lieu thereof the proceeding below is dismissed.

4. The first respondents pay the costs of the first and second appellants of the appeal and of the proceeding below.

5. The cross appellants pay the costs of the cross respondents of the cross appeal.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

TAMBERLIN, GYLES AND GILMOUR JJ

On 10 August 2006, the Chippers’ bank, National Australia Bank Ltd, advised them in writing that they had unconditional approval for a $1.3 million 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 JUDGMENT BELOW His Honour held that the right of first refusal conferred on Octra was held on trust for the benefit of the Chippers. They were entitled to the benefit of Mr Smyth’s promise under cl 6(d)(ii) of the lease to grant a right of first refusal to Octra. His Honour also held that, on the true construction of the clause, Mr Smyth had a contractual obligation to give the Chippers the opportunity to exercise a right of first refusal on the terms of the contract as varied, and that the failure to do so breached both the negative and positive requirements of the obligation. As a consequence, his Honour found that the Chippers were entitled to an injunction to restrain the breach by Mr Smyth by agreeing to convey the freehold of the farm to Red Valley. In addition, his Honour held that the Chippers had a right to specific performance (that is, to exercise the right of first refusal) and that such right had not been lost as a consequence of delay or laches. His Honour did not consider that Red Valley’s interest arising under its contract to purchase the land prevented the Chippers from seeking a remedy. In conclusion, his Honour granted specific performance and ordered the respondents to the application to pay the Chippers’ costs. All the other questions raised on appeal turn on the question of construction of the right of first refusal conferred under the lease. On the construction question, his Honour concluded that notwithstanding that a binding contract of sale is made with a third party after the holder of the right of first refusal expressly declined to purchase on the same terms as the contract, if it is later varied before settlement on terms more favourable to a purchaser, the negotiation of the varied contract with the third party ought to be regarded as a new offer for sale enlivening the otherwise dormant or exhausted right of first refusal. Whether the terms of the new contract as varied are more favourable is a question of fact. His Honour decided that the terms of the agreed variation with Red Valley were more favourable in a significant respect. His Honour concluded that the vendor’s obligation to give the lessee an opportunity to be the first to refuse is not necessarily brought to an end by execution of a binding contract for sale between the vendor and the third party purchaser, but that it continues to operate in respect of a binding contract which has been varied. On the basis of this construction, his Honour concluded that the agreement for sale to Red Valley as made on 2 September 2005 was in breach of the clause conferring the right of first refusal in the lease. Having reached this conclusion on the construction question, his Honour proceeded to consider the effect of the breach and the Chippers’ entitlement to equitable relief. It is not necessary for us to consider these and other matters on appeal in view of our conclusion that his Honour erred in his analysis and construction of the clause and its application in the present circumstances and context.SUBMISSIONS AND REASONING ON APPEAL

Ratio Decidendi

Legal Principle Established

Established by: TAMBERLIN, GYLES AND GILMOUR JJ

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 369 OF 2006

JUDGES:	TAMBERLIN, GYLES AND GILMOUR JJ
DATE OF ORDER:	20 JULY 2007
WHERE MADE:	PERTH