Robertson v Lagreg Investments Pty Ltd
[2004] VSC 86
•26 March 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2102 of 2003
F5635
| DAVID ROBERTSON | Plaintiff |
| v | |
| LAGREG INVESTMENTS PTY LTD (ACN 004 332 343) & ORS | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 March 2004 | |
DATE OF JUDGMENT: | 26 March 2004 | |
CASE MAY BE CITED AS: | Robertson v Lagreg Investments Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 86 | |
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Landlord and tenant - pre-emption clause – contract of sale subject to pre-emption – whether pre-emption applies – whether pre-emption clause creates equity in tenant – priority of equities.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr AC Archibald QC and Mr Michael S Osborne | Mason Sier Turnbull |
| For the First and Second Defendants | Mr ML Sifris SC | Arnold Bloch Leibler |
| For the Third Named Defendant | Dr CL Pannam QC and Mr PD Corbett | Hall & Wilcox |
HIS HONOUR:
Prior to late 2003 the third named defendant, Composite Buyers Limited, held the property the subject of this litigation as tenant of the first and secondnamed defendants, Lagreg Investment Pty Ltd & Shiptech Pty Ltd ("the Lessors"). The property comprised a supermarket situate at and known as 91-97 Victoria Street, Eaglehawk in the State of Victoria. Composite Buyers held the property pursuant to an instrument of lease dated 12 March 1979, as varied, for a term which was to expire on 11 June 2004.
The lease contained, in cl C6, a term whereby the Lessors granted to Composite Buyers a right of first refusal to purchase the freehold in the following terms:
6. LESSEE'S RIGHT OF FIRST REFUSAL
Throughout the continuance of this Lease the Lessee shall have the following right of first refusal of the premises namely that if the Lessor desires or proposes to sell the premises the Lessor shall make an offer in writing to the Lessee which offer shall remain open for thirty (30) days to sell the premises to the Lessee at a price which is not agreed upon by the Lessor and the Lessee shall be the greater of
(a)the highest price which prior to any acceptance by the Lessee of the said offer is offered by any bona fide purchaser willing and capable of purchasing the premises on the same terms and conditions as hereinafter provided; or
(b)the fair and reasonable market price of the premises determined at the expense of the Lessee by a qualified Valuer registered under the Valuation of Land Act 1960 agreed upon by the Lessor and the Lessee and in default of agreement by two such qualified registered Valuers one each nominated by the Lessor and the Lessee respectively and in the event of a disagreement between the said Valuers the price shall be the average of their valuations
which price shall be payable by a deposit of one-tenth of the same upon acceptance of the said offer and the balance thereof within ninety (90) days of such acceptance and upon such acceptance of the said offer the Lessor shall sell to the Lessee the premises and the Lessee shall purchase the same for the price hereinbefore mentioned and a Contract for such sale and purchase shall be deemed to come into existence between the Lessor and the Lessee containing in addition to the said provisions for the price and the mode of payment thereof provisions that the Lessee shall be entitled to vacant possession or the rents and profits as the case may require on acceptance of title and payment of the balance of the said price and that the said sale and purchase shall otherwise be carried out pursuant to the provisions of Table A of the Transfer of Land Act 1958. NOTHING herein contained shall confer on the Lessee any right of first refusal if the proposed sale shall be to any relation of the Lessor (being a natural person) or to any subsidiary company or holding company of the Lessor (being a corporation) PROVIDED HOWEVER and it is hereby acknowledged that the right of first refusal contained herein shall be preserved as against such related Transferee."
By letter dated 15 September 2003 the Lessors informed Composite Buyers that they had decided to offer the property for public auction in late October with a reserve of $5.25M. In this letter, the Lessors inquired whether Composite Buyers was interested in purchasing the property at that price on the terms there set out. On 2 October 2003 the Lessors formally offered to sell the property to Composite Buyers at this price and upon the terms of an enclosed contract of sale. This offer was expressed to be an offer in compliance with cl C6 of the lease with an expiry date of 30 days from 2 October 2003. The property was put to public auction on 22 October at a time when the offer of 2 October had not been accepted and the 30 day period had not expired. Accordingly, the contract of sale offered to bidders contained the following special condition 14:
"14 PRE-EMPTION
The vendor is obliged by the terms of the Lease to offer to sell the property to the lessee. The vendor has delivered the offer to the lessee which offer expires on 3rd November 2003. If the offer is accepted this contract is cancelled and all moneys paid will be immediately refunded to the purchaser. Except for the obligations in this special condition, the vendor is not bound by this contract until the lessee has refused or failed to accept the offer to sell within the required time."
The plaintiff, David Robertson, was the successful bidder at the auction and he signed the contract of sale to purchase the property for $5.3M by himself "and/or nominee". In fact, Mr Robertson did so on behalf of an undisclosed principal, Brendan Edward Blake and he nominated Mr Blake's company, Significant Properties Pty Ltd, to complete the purchase.
After the auction, on 31 October 2003, Composite Buyers executed the contract of sale which had been proffered to it on 2 October and thereby agreed to purchase the property for $5.25M.
The Lessors have taken the position that the Robertson contract has been cancelled by the operation of Special Condition 14 and they wish to complete the Composite Buyers contract of sale. Mr Robertson has lodged a caveat to protect his interest as purchaser under the auction contract of sale.
The principal question in this litigation, therefore, is whether Special Condition 14 has operated to cancel the auction contract of sale.
It was put on behalf of Mr Robertson, and not seriously disputed, that the offer of 2 October did not comply with the requirements of cl C6 of the lease. Accordingly, the question becomes one of the construction of Special Condition 14. Does the expression "the offer" used on three occasions in that Special Condition refer only to the offer which the Lessors must give to the tenant pursuant to the obligation referred to in the first sentence? If it does, the termination of the auction contract of sale pursuant to the Special Condition will occur only where the acceptance of the offer which triggers this, is an acceptance of an offer which conforms with cl. C6 of the lease.
I turn to the text of Special Condition 14. The first sentence summarises the obligation of the Lessors under cl C6 of the lease, a copy of which is annexed to the contract of sale. The second sentence uses the definite article before the word "offer", a fact which laid the foundation for the fundamental submission put on behalf of Mr Robertson that it referred to the same offer as that mentioned in the first sentence, namely, an offer which conforms with the requirements of cl. C6 of the lease.
It may be supposed that the bidders at the auction and, more importantly, the successful bidder at the moment of the execution of the auction contract of sale, have read the first sentence and the pre-emption clause in the lease. They know of the tenant’s right of first refusal. They read on. The second sentence tells them that “the offer” has been delivered and that it expires on 3 November 2003. The readers know from the auction contract of sale nothing of the terms of this offer except its expiry date. They do, however, know from the third sentence that it is an offer which is capable of acceptance and that its acceptance within time will bring to an end the auction contract of sale.
The Lessors may be supposed to know a good deal more. They know that an offer has been made on 2 October and its terms. They may or may not know that it is an offer which Composite Buyers was entitled to receive under cl. C6 of the lease or that it did not conform to the requirements of that clause. It is an offer nonetheless, and one capable of acceptance. If the offer is accepted prior to its expiry and if the property is sold by unconditional contract at auction, then this raises the prospect of difficulties, for the Lessors cannot complete both contracts. Special Condition 14 might, therefore, be seen as an attempt by the Lessors to protect themselves from this risk.
The position of Composite Buyers is a little different. The pre-emption cl. C6 in the lease confers upon it the right to receive an offer to sell in specific terms. The clause does not prevent the Lessors making to it an offer to sell in different terms, which offer Composite Buyers may be content to receive. It may accept any offer to sell which is made, whether it be in conformity with cl. C6 or otherwise.
Counsel for Mr Robertson identified as pivotal the third sentence in Special Condition 14 which provides, “If the offer is accepted this contract is cancelled and all moneys paid will be immediately refunded to the purchaser”. They said that the offer here referred to must be that identified in the first sentence. I am not so sure. The first sentence does not speak of a specific offer having been made; it refers to the obligation of the Lessors to make an offer. To my mind the offer referred to in the third sentence is that which has been identified in the second sentence as having been made. This is confirmed by the last sentence which clearly refers to the offer which has in fact been made. The “required time” in this last sentence is a reference to the proceeding on 3 November 2003, when the offer referred to in the second sentence is said to expire[1]. The intention of the drafter of Special Condition 14 is that this offer, if accepted, shall bring into existence a contract of sale which prevails over the auction contract of sale.
[1]It may be more correct to say that the offer in fact expired at midnight on 1 November, but no point was made of this.
On behalf of Mr Robertson it was said that, if the offer in the second sentence were a reference to an offer other than that mentioned in the first sentence, there would be no need for the first sentence. That may, as a matter of construction, be correct. The sentence does, however, provide a background explanation for what would otherwise be a most unusual clause in an auction contract of sale.
Next, it was contended that the bidders at the auction were unaware of the terms of the offer of 2 October. Let this be assumed, for there is nothing in the auction contract of sale which discloses these terms. In these circumstances, the construction contended for on behalf of Mr Robertson creates practical difficulties. Special Condition 14 operates only where the offer of 2 October conforms with the requirements of cl. C6. The bidders, therefore, cannot be expected to form any view as to whether the offer which has been made will, if accepted, defeat their bids. To conduct an auction under the shadow of the uncertainty created by the existence of an unaccepted priority offer must have been difficult enough. How much more so would it be in the case where the priority offer might be ineffective as such, due to some non-conformity about which the bidders can know nothing?
Finally, it was put that the evident purpose of Special Condition 14 was to protect the Lessors from exposure to a claim for breach of their obligations under cl. C6 of the lease. Let it be supposed that the offer which was in fact made on 2 October did not conform with the requirements of cl. C6 and that Composite Buyers ignores it or, at least, does not accept it within time. The property is then sold at auction. The risk to the Lessors in these circumstances is that Composite Buyers might then say to the Lessors that they have sold without first having made a conforming offer. The protection against this risk, which the Lessors seek to obtain from Special Condition 14, can only arise, the argument went, if the offer referred to in the Special Condition were a conforming offer. I am not persuaded by this submission. The Lessors were taking a substantial legal and commercial risk by putting the property to auction before the expiry of the 30 days contained in the 2 October offer. If, as a matter of construction, they are to be taken to have provided an escape from the auction contract of sale only if the 2 October offer was a conforming one, their risk is even greater. Composite Buyers could still insist upon a conforming offer notwithstanding that the non-conforming 2 October offer has been rejected or lapsed. The successful bidder could also contend that the auction contract of sale has become unconditional since Special Condition 14 has not operated. If an available construction could avoid this uncertainty and potential for conflict, I should be very tempted to adopt it.
These commercial aspects of the interpretation of Special Condition 14 all point against the construction contended for on behalf of Mr Robertson. He bid at the auction knowing that his successful bid was subject to being trumped by the subsequent acceptance of an offer previously made to the tenant. His complaints then, that this has come to pass, have a hollow ring.
The Lessors supported the contract of sale to Composite Buyers notwithstanding that it was somewhat less valuable than that of Mr Robertson. Counsel on their behalf presented an argument to the effect that Mr Robertson, as a person who is not a party to the lease, is not entitled to raise a contention that the offer of 2 October does not conform with the requirements of cl. C6. As a stranger to the agreement, he cannot enforce it. For reasons which I raised in argument, I consider this to be beside the point. Mr Robertson is not seeking to enforce cl. C6 of the lease; he is concerned with Special Condition 14 in a contract to which he is a party. His concern is whether the expression “the offer” in that clause means a conforming offer or any offer, in order to determine whether the event provided for in Special Condition 14 to determine his auction contract has come to pass.
Counsel for Composite Buyers put many of the arguments, which I have summarised above, in answer to those put on behalf of Mr Robertson and I will not rehearse them. They did, however, put the further argument that the contention made on behalf of Mr Robertson, involved the Court construing Special Condition 14 as containing a warranty or promise that the offer referred to in the second sentence was one which conformed to the Lessor’s obligation mentioned in the first sentence. I would certainly not be prepared to infer such a warranty from Special Condition 14 and counsel for Mr Robertson disavowed any such contention.
It will be apparent from my consideration of the competing contentions in this case, that I am of opinion that the expression “the offer” where appearing in the Special Condition refers to the offer of 2 October; it is not a reference only to that offer, or to any offer, provided that it conforms to the requirements of cl. C6 of the lease. Special Condition 14 operated to determine the rights of Mr Robertson on 31 October when Composite Buyers accepted the offer of 2 October.
I turn now to consider the alternative position adopted late in the day by Composite Buyers in an amendment to its defence made by leave granted on 1 March 2004. This was that, assuming Special Condition 14 did not operate to put an end to the auction contract of sale, the Court was confronted with a competition between two competing equities; that arising under the pre-emption clause in favour of Composite Buyers, and that arising under the auction contract of sale in favour of Mr Robertson. Faced with this competition, counsel argued, the first in time should prevail so that specific performance of the auction contract of sale should be refused. This was, it was said, the equity of Composite Buyers for this arose on or shortly prior to 15 September 2003 when the Lessors first desired or proposed to sell the property. This conclusion is fortified by the fact that the second in time, the equity of Mr Robinson, arose when he had notice of the other equity, for it is referred to in Special Condition 14.
I should preface my remarks by noting that it is not necessary for me to determine this point, having regard to my conclusions as to the construction of Special Condition 14. Furthermore, this point, which was raised towards the end of argument by counsel for Composite Buyers, was not the subject of debate before me. I was left with the written submission of that party to which, by leave, counsel for Mr Robertson delivered a written submission in reply. In these circumstances, I shall do little more than state my views in the hope that they may be of assistance in the event that this case goes further.
It is well-established that no equitable interest in the property in favour of Composite Buyers arises from the presence in the lease of cl. C6[2]. Where the right of pre-emption entitles the tenant to receive an offer to sell upon the occurrence of a triggering event, and that event occurs, the question is more difficult. In cl. C6 the Lessors are obliged to make an offer to sell to the tenant “if the Lessor desires or proposes to sell the premises”. Clearly, in this case, such a desire or proposal existed on 15 September 2003 when the Lessors wrote to Composite Buyers announcing their intention to put the property to auction. At this point the Lessors were obliged to make an offer in conformity with cl. C6 and Composite Buyers had the corresponding right to receive such an offer. Authorities on the question whether, at that time, Composite Buyers acquired an equitable interest in the land are in conflict. Having read the cases to which I have been referred, I am of opinion that the weight of authority leads to the conclusion that, in a case such as the present, there arose on 15 September 2003 an equitable interest in Composite Buyers in the property[3]. It was entitled to call for and receive an offer, the terms of which are set out in considerable detail in cl. C6. The fact that the price to be paid is not there determined is beside the point. The terms of the required offer establish a mechanism for the later determination of this component.
[2]Mackay v Wilson (1947) 47 SR (NSW) 315 at 325, per Street J
[3]Mackay v Wilson (1947) 47 SR (NSW) 315 at 325 cited with apparent approval in Woodroffe v Box (1954) 92 CLR 245 at 254, per Fullagar, Kitto JJ; Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321 at 343, per Santow J; Beneficial Finance Corporation v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 at 526, per Young J; Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762 at 765-6, per Tipping J; Jonns v Kim Seong Tan [1999] NSW SC 64 at [13], per Santow J; Bob Jane T-Marts Pty Ltd v The Baptist Union of Victoria [1999] VSC 346 per Warren J.
In fact, no conforming offer was made. The offer of 2 October in non-conforming terms was, nevertheless, accepted by Composite Buyers on 31 October 2003. The entitlement of Composite Buyers to receive a conforming offer was then lost, if it had not been lost or waived previously by its receipt of the non-conforming offer without complaint and by its failure thereafter to require the delivery of a conforming offer. The competition between the equities, therefore, becomes one between Mr Robertson as purchaser under the auction contract of 22 October 2003 and Composite Buyers as purchaser under the contract constituted by its acceptance on 31 October of the non-conforming offer of 2 October. Accordingly, the competition between Mr Robertson’s equity and that arising out of the triggering of the pre-emption clause asserted by counsel on behalf of Composite Buyers does not arise.
I conclude, therefore, that Mr Robertson’s claim for specific performance and injunctive relief must fail. I will hear counsel as to the precise orders to be made to give effect to this conclusion and as to costs.
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