Southern Region Ltd v Wallington Hardware and Timber Pty Ltd
[2010] VSC 95
•31 March 2010
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted | |
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 10917 of 2009
| ACN 004 443 627 (SOUTHERN REGION) LTD MITRE 10 AUSTRALIA LIMITED ACN 009 713 704 | Firstnamed Plaintiff Secondnamed Plaintiff |
| v | |
| WALLINGTON HARDWARE & TIMBER PTY LTD ACN 007 193 679 BUNNINGS GROUP LIMITED ACN 008 672 179 | Firstnamed Defendant Secondnamed Defendant |
AND BETWEEN
| BUNNINGS GROUP LIMITED ACN 008 672 179 | Plaintiff to Counterclaim |
| v | |
| ACN 004 443 627 (SOUTHERN REGION) LTD MITRE 10 AUSTRALIA LIMITED ACN 009 713 704 WALLINGTON HARDWARE & TIMBER PTY LTD ACN 007 193 679 | Firstnamed Defendant to Counterclaim Secondnamed Defendant to Counterclaim Thirdnamed Defendant to Counterclaim |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9, 10, 11, 12, 15 March 2010 | |
DATE OF JUDGMENT: | 31 March 2010 | |
CASE MAY BE CITED AS: | Southern Region Ltd & Anor v Wallington Hardware & Timber Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 95 | |
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CONTRACTS — Option of first refusal — Completed contract for sale – Proposed sale subject to option of first refusal – Test of construction for commercial options – Whether exercise of option occurred – Waiver or inconsistent behaviour – Other matters – Consideration for supplementary agreement – Specific performance – Goldmaster Homes Pty Ltd v Johnson [2006] NSW ConvR 56-142 – International Leasing Corporation (Vic) Limited v Aiken (1966) 85 WN (Pt 1) (NSW) 766.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Riordan SC Mr A Nash | Middletons |
| For the First Defendant | Mr Northrop | Harwood Andrews Lawyers |
| For the Second Defendant | Mr A J Kelly SC Mr M McNamara | Lander & Rogers |
HIS HONOUR:
Background
The plaintiffs and the first and second defendants to the counterclaim are members of the Mitre 10 group of companies which, for convenience, are referred to as “Mitre 10”.
The first defendant and the third defendant to the counterclaim, is a licensed member of Mitre 10 and trades as “Wallington Mitre 10 Home & Trade” at 356 Grubb Road, Drysdale, pursuant to a Sub-Licence Agreement dated 26 March 1991. For convenience, this party is referred to as “WHT”.
The second defendant and the plaintiff to the counterclaim, Bunnings Group Limited (“Bunnings”), operates the Bunnings chain of hardware stores. It entered into an agreement to purchase the business which WHT carries on in Drysdale (referred to as “the business”).
Mitre 10 and WHT are parties to five agreements, all dated 26 March 1991, which are a suite or package of agreements required of a party seeking to become a licensee to use the names “Mitre 10” or “Mitre 10 (Australia)”, and to become a member of the group of traders selling as “Mitre 10” (“the Mitre 10 group”). Mr Mark Burrows, the Chief Executive Officer of Mitre 10 Australia Limited, described the Mitre 10 group as something in the nature of a cooperative group of trader members. For present purposes, it is not necessary to analyse the nature of the group, whether as a cooperative of members, a franchise arrangement or otherwise, save to observe that the effect of Mitre 10 “membership” for a trader is to include its store in the group of stores that consumers would identify as being within the Mitre 10 group.
The suite or package of agreements which forms the basis of a trader’s membership of the Mitre 10 group is comprised of a Sub-Licence Agreement (“Sub-Licence Agreement”), a Right of First Refusal Agreement (“RFR Agreement”), a Terms of Trade Agreement, a Loan Fund Agreement and a Commercial Injury agreement. Both the RFR Agreement and the Commercial Injury agreement are expressed to be “supplemental to the Sub-Licence Agreement”.
The Sub-Licence Agreement granted the sub-licence on the following terms:
“1. The Licensee HEREBY GRANTS to the sub licensee a sub licence upon the terms and conditions hereinafter contained or referred to, to use in connection with his business the names MITRE 10 AUSTRALIA and MITRE 10 and the distinctive signs marking style colours and colour schemes or other devices and symbols from time to time laid down by the Holding Company (hereinafter called “the Company Signs”) and to receive all advertising and sales promotion literature distributed by the Licensee.”
The remaining provisions include provisions with respect to the payment of a licence fee and, possibly, a general levy. The sub-licensee must also observe all rules and regulations in force in relation to the Mitre 10 signs, and comply with Mitre 10’s directions relating to those signs.
The RFR Agreement, in broad terms, provides an opportunity for Mitre 10 to maintain the business of a sub-licensee member within the Mitre 10 group by providing a right of first refusal in favour of Mitre 10 to purchase the business of a sub-licensee. This allows Mitre 10 to meet or better any bona fide offer received by a sub-licensee. Further attention is given to the specific provisions of this agreement in the course of examining its proper construction and effect.
The Terms of Trade Agreement contains provision for credit, interest and fees. Approval of credit for merchandise supplied by Mitre 10 is required to be granted to a member by Mitre 10 in accordance with criteria laid down by the board of directors of Mitre 10 from time to time, subject to a general discretion. Separate regimes are provided in this respect for purchases by members through the Mitre 10 warehouse, and purchases by members direct through suppliers. Specific provision is made for the appointment of Mitre 10 as the agent of a member to purchase general goods and building supplies in the name of that particular member.
The Loan Fund Agreement recites, among other things, that it is a condition of the grant of various rights, including the right to use Mitre 10 signage under the Sub-Licence Agreement, that the member sub-licensee should make certain loans to Mitre 10 subject to the terms of the Loan Fund Agreement. Provision is made for the term of the loan, repayment, interest payments, early repayment and variation of the amount and term of loans. On cessation of membership, provision is made for a taking of accounts as between the member and Mitre 10 and for the repayment of any final balance standing to the credit of a member in the Member’s Loan Fund account. The Commercial Injury agreement also deals with termination of membership and contains an agreement that Mitre 10 “shall not be liable for consequential damage of any kind whether as a result of a loss by the Sub-Licensee of present or prospective profits, anticipated sales, expenditures, investments, commitments made in connection with any of the Agreements referred to [that is, the Sub-Licence Agreement]…”.
It is clear from this suite or package of agreements that although their provisions are contained in separate documents, they are an interrelated set of provisions. It is not necessary to speculate on whether commercial arrangements between Mitre 10 and some of its members may not have required entry into each one of these agreements, apart from the Sub-Licence Agreement which would appear to be the essential basis of Mitre 10 group membership. The express reference in the RFR Agreement and the Commercial Injury agreement to these agreements being supplemental to the Sub-Licence Agreement may indicate that these agreements are also an essential part of the sub-licensing arrangements. Nevertheless, commercially, one might think that the Terms of Trading Agreement and the Loan Fund Agreement were also of significant importance. In any event, I am satisfied that some or all of these agreements would form part of the suite or package of agreements which Mitre 10 required a prospective Mitre 10 group member to enter into. In the case of WHT, the suite or package clearly included all these agreements.
Evidence was given of a number of approaches made to WHT, at various times, to purchase the business. These included an approach by Bunnings, in April 2008, which resulted in discussions which apparently ceased around September 2008. In the course of those discussions, WHT notified Bunnings of the existence of the RFR Agreement.
The discussions between Bunnings and WHT recommenced in early 2009 and a number of meetings took place from around March 2009. As a result of those discussions, Bunnings and WHT entered into a Business Acquisition Agreement dated 30 October 2009 (“the BAA”). The BAA was subject to conditions precedent. One of which, as provided for in paragraph 4.1(g), was that “The time for exercise of any such rights [being the rights referred to in clause 4.1] having expired and Mitre 10 having not exercised any pre-emptive rights or first rights of refusal in respect of the sale and purchase of Assets contemplated by this agreement”.
Shortly after the execution of the BAA, Mr John Webb, a director of WHT, sent an email to Mark Burrows advising Mitre 10, among other things, that WHT had “signed a conditional offer with Bunnings Group Limited” for the sale of the business and that, subject to Mitre 10 not exercising its right under the RFR Agreement, it intended to proceed with the proposed sale to Bunnings. The email, which was dated 4 November 2009, set out broad details of the transaction contemplated by the BAA. In particular, it stated that the proposed purchase price was $8 million, and that the purchaser would take a lease of the premises at 356 Grubb Road, Drysdale. The contents of this email, which is referred to as “the 4 November 2009 email”, is one of the critical communications between the parties in the context of these proceedings.
On 23 November 2009, John Webb notified Mark Burrows by telephone and email that the purchase price of the business had been overstated in the 4 November 2009 email and that the correct figure was $7.2 million.
By letter dated 1 December 2009 from Mark Burrows on behalf of Mitre 10 to John Webb on behalf of WHT, Mitre 10 submitted a “bid” to purchase the business on terms and conditions specified in that letter subject to “confirmation of the Bunnings offer”. This letter is another of the significant communications between Mitre 10 and WHT and is, for convenience, referred to as “the 1 December 2009 letter”.
WHT’s solicitors responded to the 1 December 2009 letter by letter dated 2 December 2009 to the effect that it was WHT’s view that Mitre 10’s right of first refusal had not been validly exercised and that WHT “will continue to finalise the settlement of their sale agreement with Bunnings”. Mitre 10 responded to this letter from WHT’s solicitors by letter dated 4 December 2009 to those solicitors, the substance of which was as follows:
“We disagree with your assertion that the Right of First Refusal is not capable of meaningful interpretation. Clause 1.1 requires only there be a bona fide offer, not a binding contract in place. Your client is required under this clause to provide a true and complete copy of this offer, or a true and complete statement in writing of ALL terms and conditions of the offer. Neither of these has been effected.
We therefore request in accordance with the Right of First Refusal either a true and complete copy of the offer or a true and complete statement in writing of all terms and conditions of the offer so that we may submit an appropriate offer to your client to consider. Until this occurs, your client is in no position to proceed with the Bunnings offer and we reserve our rights.”
The BAA was not supplied to Mitre 10 before the 4 November 2009 email and, despite further requests by Mitre 10 of WHT on 17 and 21 December 2009, no copy of the BAA was forthcoming until 24 December 2009[1]. No further statement in writing of the terms and conditions of the offer was provided, as was indicated by Mitre 10 as an alternative.
[1]See below, paragraph 20.
Evidence was given by John Webb, for WHT, that it had, through its solicitors, made a number of requests to Bunnings for consent to provide a copy of the BAA to Mitre 10, but that those requests had been refused. In response, the evidence by Mr Wedgwood, Chief Financial Officer for Bunnings, suggested that while a copy of the BAA was not provided, an offer on 9 December 2009 (repeated on 21 December 2009) was made, to allow Mitre 10 to inspect the BAA under certain conditions. No agreement could be reached as to the terms of inspection.
On 16 December 2009, in a letter from WHT’s solicitors to the solicitors acting for Bunnings, the following comment was made with respect to the position apparently taken on behalf of Bunnings that the condition precedent contained in clause 4.1(g) of the BAA had been satisfied:
“Our advice to our client is that this is not the case. Our advice to our client is that it has failed to satisfy the obligations contained in the right of first refusal agreement with Mitre 10 by failing to provide a true and complete copy of the offer document constituted by the business acquisition agreement. Our advice to our client is that it can only meet this obligation by providing a copy of the business acquisition agreement to Mitre 10, and it is for this reason that our client has requested permission to disclose this document.”
This advice was confirmed in a further letter to Bunnings’ solicitors from WHT’s solicitors dated 21 December 2009.
On 24 December 2009, Davies J made orders restraining the completion of the sale of the business pending a further hearing on 13 January 2010. At that hearing, I made orders by consent for an expedited final trial, instead of an interlocutory hearing, of the issues raised in this matter.
On 24 December 2009, Bunnings provided Mitre 10 with a copy of the BAA “on the strict basis” that in so doing the BAA was not provided pursuant to the RFR Agreement. There was further correspondence in relation to a missing Schedule 7 to the BAA, but this was provided by Bunnings on 5 January 2010, by email. A letter of the same date, 5 January 2010, was sent from WHT’s solicitors to Mitre 10’s solicitors. WHT’s solicitors made various comments, which were expressed to be without prejudice to, and without waiving any rights of WHT or any position previously adopted by WHT with respect to compliance with the requirements of clause 1.2(a) of the RFR Agreement. The letter was concluded with the following:
“Again, without prejudice to or waiver of our client’s position concerning interpretation of clause 1.2(a), in the event that our client’s interpretation of this position is held to be incorrect we give you formal notice that this letter is to stand as notice of our client’s offer to sell the business in accordance with the provisions of clause 1.2(a) on the terms and for the consideration contained in the Bunnings contract of which you and Mitre 10 have previously been given notice, most recently by email from Lander & Rogers [Bunnings’ solicitors] of 24 December 2009 and by email from us of 29 December 2009.”
By letter dated 20 January 2010, Mitre 10 exercised the right of first refusal by its subsidiary South Coast Operations Pty Ltd agreeing to acquire the business on the same terms as set out in the BAA.
For the purposes of this proceeding, the parties agreed that:
(a)If the 4 November 2009 email constituted a notice under the RFR Agreement, it was a notice to the optionees under that Agreement; and
(b)any exercise of the right of first refusal by Mitre 10 Australia Limited on 1 December 2009 was an exercise of that right by it as nominee or agent for the first plaintiff.
It was also the position of the parties that if it was found that the 4 November 2009 email did not constitute notice under the RFR Agreement and it was found that Mitre 10’s rights subsisted under that agreement on 5 January 2010, then the 20 January 2010 letter constituted a valid exercise of the option to purchase the business in favour of Mitre 10’s nominee for the purposes of paragraph 1.2(a) of the RFR Agreement.
Issues
The plaintiff’s claim was for declaratory and injunctive relief which, in substance, sought to establish that WHT was required to comply with the RFR Agreement; together with injunctive relief to restrain it from selling the business without complying with that agreement, and an injunction to restrain Bunnings from acquiring the business without WHT first complying with the RFR Agreement.
Bunnings’ position was that WHT had satisfied its obligations under the RFR Agreement prior to 5 January 2010. Bunnings did not, however, suggest that WHT had complied with its obligations under that agreement as a result of the 4 November 2009 email or otherwise subsequently. Rather, Bunnings’ position was that WHT had been relieved of its obligations under the RFR Agreement as a result of the 1 December 2009 letter from Mitre 10. Bunnings argued that the 1 December 2009 letter constituted an election by Mitre 10 to accept the tender of non-contractual performance by WHT of its strict obligations under the RFR Agreement, or an implied rejection of WHT’s offer to sell its business to Mitre 10 as contemplated by the RFR Agreement. More particularly, Bunnings identified the principal issues arising for determination as follows:[2]
[2]Bunnings Closing Submissions (March 2010), paragraph 26.
“(a)Consideration: Is the RFR Agreement unenforceable;
(b)Breach of the RFR Agreement: Did WHT not offer:
(i) to sell the business for the same price payable in the same manner and at the same time and otherwise in all respects upon the same terms and conditions set out in the BAA; and
(ii) to sell the business on the basis that the first plaintiff could exercise its option to purchase by notifying WHT in writing of its election to do so within the option period.
(c) Election: Did Mitre 10 by its conduct up to 1 December 2009:
(i) elect unequivocally not to insist on strict performance by WHT of its obligations under the RFR Agreement;
(ii) elect unequivocally that Mitre 10 would submit an offer to purchase the business and do so pursuant to the RFR Agreement notwithstanding the tender of non-contractual performance by WHT of its strict obligations under the RFR Agreement?
(d)Counter-offer & Rejection thereof: Has a right to exercise a right of first refusal under cl. 1.2(a) been exercised? Is it now extinguished?
(e)Re-commencement of Right of First Refusal: Did the 28 day option period under the RFR Agreement commence to run (again) on 24 December 2009 or at any time thereafter?
(f)Injunction: Does Mitre 10 have an underlying cause of action to support an injunction? Were the plaintiffs ready, willing and able to purchase the business on the same terms as those contained in the BAA?
(g)Specific Performance: Where WHT admits Bunnings readiness, willingness and ability to complete the BAA, is the BAA now unconditional, such that Bunnings is entitled to enforce completion of the BAA?
(h)Interference with contractual relations: This cause of action was abandoned in opening ... .
Bunnings submits that, for the reasons which follow, Mitre 10’s claims should be dismissed and that it is entitled to specific performance.”
Mitre 10 agreements structure and consideration for the RFR Agreement
Bunnings submitted that the RFR Agreement was not executed as a deed but as a simple contract and, consequently, that it was not enforceable against WHT as no consideration passed from the optionees to WHT under the RFR Agreement.
Bunnings also submitted that although the Corporations Act 2001 (Cth) recognises the position at common law that a company has all the legal capacity of a natural person, and so may execute an agreement as a simple contract or as a deed,[3] a document executed by a company is only to be treated as a deed if the document is expressed to be a deed and has been executed in accordance with the relevant provisions of that Act.[4] The authorities indicate that a document executed by a company under its common seal is not to be regarded as a deed unless the seal has been affixed with the intention that the document take effect as a deed.[5] The RFR Agreement, though executed by Mitre 10 (Australasia) Holdings Limited, Mitre 10 (Southern Region) Ltd and Wallington Hardware & Timber Pty Ltd under the common seals of each of those companies, is not expressed to be a deed either in its substantive provisions or in the parties section. In fact, the parties section of the RFR Agreement is prefaced by the words “This agreement” and the operative part of the agreement is introduced or headed with the word “Agreement”. Consequently, I am of the opinion that the RFR Agreement is properly characterised as a simple contract, rather than a deed, and therefore the question of consideration arises.
[3]See ss 124(1) and 127.
[4]Sub-sections 127(1) and (2).
[5]Muirfield Properties Pty Ltd v Erik Kolle & Associates Pty Ltd (VSC: Tadgell J; 7 April 1987; unreported); and see Backstop Nominees Pty Ltd v Goscor Pty Ltd [1989] VR 468 at 470 (Tadgell J).
Bunnings noted in its written submissions that Mitre 10 contended that the “no consideration” plea was not raised by WHT and, consequently, questioned the ability of Bunnings to rely on that defence. Bunnings responded that if WHT was free to contract with it, subject to any rights possessed by Mitre 10 under the RFR Agreement, Bunnings is quite entitled to enforce the BAA according to its terms. Consequently, Bunnings submitted that if the RFR Agreement is unenforceable for want of consideration, Bunnings is entitled to enforce the BAA immediately. On this basis, I am of the opinion that Bunnings is entitled to raise the issue.
Bunnings submitted that the mere fact that the RFR Agreement was executed contemporaneously with the other agreements, the Sub-Licence Agreement and the other agreements to which reference has been made, does not provide consideration for the promises of WHT under the RFR Agreement. This was said to be because the other agreements should be regarded in the nature of past consideration, or because the existence of these other agreements would not have the effect of providing valuable consideration for the RFR Agreement. Reference was also made in Bunning’s submissions to the express provision in the RFR Agreement that it is “supplemental” to the Sub-Licence Agreement. This was to make the point and emphasise that even the expressly agreed supplemental nature of the RFR Agreement with respect to the Sub-Licence Agreement did not have the effect of providing valuable consideration as a result of this agreed connection. It was also submitted that an express provision of this nature did not have the effect of incorporating the provisions of the RFR Agreement into the Sub-Licence Agreement, and thereby subjecting its provisions to the consideration of the promises and agreements contained in that Agreement. Bunnings further submitted that although provisions of agreements which have been executed contemporaneously may be employed in the process of construing one such agreement within a group of agreements,[6] it is an entirely separate question whether the giving of valuable consideration for one agreement may be employed as constituting consideration for another.
[6]See Re Clark’s Refrigerated Transport Pty Ltd [1982] VR 989 at 996 (Brooking J).
Mitre 10, on the other hand, submitted that the RFR Agreement was executed when WHT became a “member” of the Mitre 10 group, contemporaneously with the other agreements which addressed various aspects of its business relationship with Mitre 10, as well as share transfers transferring ownership of shares in various Mitre 10 companies to WHT.
In my opinion, it would be extremely artificial to view the RFR Agreement in isolation from the other agreements with which it apparently constituted part of a suite or package, as is evident from a consideration of the terms of these various agreements.[7] I am strengthened in this view by the following statement of Brooking J in Re Clark’s Refrigerated Transport Pty Ltd:[8]
“The mortgage and memorandum, if not actually contemporaneous, were executed within so short an interval that, having regard to the nature of the transaction, they represent a single transaction, and so are to be treated as a single document for the purposes of construction: Murphy v Martin (1864), 1 WW & A’B 26; Smith v Chadwick (1882), 20 ChD 27, per Jessel MR, at pp 62-3; International Leasing Corporation (Vic) Limited v Aiken (1966) 85 WN (Pt 1) (NSW) 766 at p 801, per Moffitt AJA.”
The New South Wales Court of Appeal in the International Leasing Corporation (Vic) Limited v Aiken,[9] to which Brooking J made reference, considered the extent of the operation of a guarantee with respect to obligations under a lease which had been executed prior to the guarantee, but on the same day. It was in this context that Moffitt AJA said:[10]
“However, unless the court is constrained so to do, it will not construe a contract, including a contract of guarantee, as wholly inoperative (Montefiore v Lloyd (55); Leathley v Spyer (56). A guarantee is to be considered with reference to the surrounding circumstances and the relative position of the parties (Rowlatt on Principal and Surety, 3rd ed., p 61). As Thesiger LJ said of the construction of a guarantee in Morrell v Cowan (57), ‘… the court is entitled to look at the surrounding circumstances; that is to say, it is entitled to consider, first, who the parties were; secondly, in what position they were; and thirdly, what the subject-matter of the agreement was’. As was said by the Privy Council in Shaw v Jeffery (58), ‘… when the same parties execute contemporaneously several instruments relating to different parts of the same transaction, all must be considered together; all must be examined in order to understand each; apparent inconsistencies are to be reconciled’ (Toohey v Gunther (59); Motor Credits (Hire Finance) Ltd v Mawson (60)).”
[7]See above, paragraphs 6 to 9.
[8][1982] VR 989 at 996.
[9](1966) 85 WN (Pt 1) (NSW) 766.
[10]International Leasing Corporation (Vic) Limited v Aiken (1966) 85 WN (Pt 1) (NSW) 766 at 800-1.
In my opinion, the approach adopted in Re Clark’s Refrigerated Transport Pty Ltd[11] and International Leasing Corporation is consistent with the approach of the High Court in cases such as Upper Hunter County District Council v Australian Chilling and Freezing Co Limited[12] which would appear to be equally applicable to the proper treatment and construction of a suite or package of agreements, of which the RFR Agreement forms part. The approach was encapsulated by Barwick CJ, as follows:[13]
“But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin’s words in this connexion in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 512 ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright’s words in Scammell (G) & Nephew Ltd v Ouston (1941) AC 251 is not ‘so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention’, the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.”
[11][1982] VR 989.
[12](1967) 118 CLR 429.
[13]Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-7.
It would, in my opinion, be an extraordinary proposition to suggest that the RFR Agreement is a single transaction which would have been entered into by Mitre 10 and WHT in the absence of the other agreements in the suite or package of agreements to which reference has been made. It may be that, as indicated previously,[14] this agreement might have been entered into without the parties necessarily entering into all the agreements, though there would seem to be no basis for it had they not entered into, at least, the Sub-Licence Agreement. In my opinion, this is, at most, the significance of the reference to the RFR Agreement being supplemental to the Sub-Licence Agreement. On this basis, the RFR Agreement was clearly part of the suite or package of agreements to a degree which provides a mutuality of promises which, in my view, provides valuable consideration for the obligations of WHT under the RFR Agreement. In my opinion, a contrary view would be to adopt a “narrow or pedantic approach” with respect to the consideration issue, not justified by the terms or commercial reality underlying the suite or package of agreements and at odds with the approach adopted in the authorities referred to above.
[14]See above, paragraph 10.
RFR Agreement
The critical provisions of the RFR Agreement are those contained in the following provisions of clause 1:
“1. In the event of the Sub-Licensee at any time proposing to –
(a)Sell the business carried on at the Licensed Premises (“the business”), or
(b)Being a Company sell its assets or a controlling interest therein, or
(c)Proceed by any other means which directly or indirectly causes the sale of the business (“the proposed sale”), or
(d)Sell transfer assign lease or otherwise part with the possession of the Licensed Premises
the Sub-Licensee shall in addition to observing all rules and regulations regarding such sale in the Articles of Association of the Licensee –
1.1Submit to the Licensee and the Holding Company a true and complete copy of any bona fide offer (which is capable upon its acceptance of creating a binding contract) made or received (if in writing) or a true and complete statement in writing of all terms and conditions (if not in writing) of the proposed sale assignment lease or other dealing parting with possession of the Licensed Premises including the name and address of the proposed purchaser assignee lessee or other person as aforesaid (‘the identified purchaser’).
1.2In the event of the proposed sale –
1.2(a)Offer to sell the business to the Licensee and to the Holding Company or to a Company nominated by the Licensee or the Holding Company which Companies shall have the first right and option to purchase the business for the same price payable in the same manner and at the same time and otherwise in all respects upon the same terms and conditions set out in the offer or statement (‘option to purchase’). Either the Licensee or the Holding Company (or if both wish to exercise the option to purchase then the Holding Company alone) or its nominee may exercise the option to purchase by notifying the Sub-Licensee in writing of its election to do so within 28 days of submission of the offer or statement (‘the option period’);
1.2(b)enter into a contract to effect the proposed sale to the identified purchaser only if that contract is expressed to be subject to the option to purchase for the option period.
1.3If neither the Licensee nor the Holding Company exercise the right to purchase conferred by this Clause, then after the expiration of the option period the Sub-Licensee may proceed to sell the business but only –
1.3(a) to the identified purchaser and
1.3(b) at the same price and otherwise in all respects upon the same terms and conditions set out in the offer or statement.
…
1.5If a valid and binding Contract between the Sub-Licensee and the identified Purchaser has not been entered into within 60 days after the submission of the offer or statement pursuant to Clause 1.1 the proposed sale shall be deemed to have lapsed and be at an end and the provisions of Clause 1 of this Agreement shall again apply in their entirety as if no proposed sale had ever existed.”
WHT and Bunnings submitted that the operation of the RFR Agreement was triggered by the occurrence of any of the events specified in paragraphs (a) to (d) of the chapeau to clause 1 of that Agreement. In the present circumstances, they submitted that the relevant event was the execution of the BAA, which was an event provided for in paragraph (a) of the chapeau.
WHT and Bunnings submitted that the execution of the BAA triggered obligations on WHT under the RFR Agreement which, in summary, required it to offer the business for sale to Mitre 10 on the same terms as the business was to be sold to Bunnings under the BAA. In particular, it was submitted that the obligations under sub-clauses 1.1 and 1.2 were separate and independent in the sense that the requirement that WHT provide an offer to sell the business to Mitre 10 under paragraph 1.2(a) did not require, as a precondition or preliminary step, compliance with the provisions of sub-clause 1.1. Mitre 10, on the other hand, submitted that the provisions of clause 1 of the RFR Agreement required WHT to provide Mitre 10 with a copy of the BAA in fulfilment of its obligations under the Agreement as a result of the happening of an event of the type specified in paragraph (a) of the chapeau to clause 1; namely, the execution of the BAA.
It was common ground that the 4 November 2009 email did not comply with the RFR Agreement. Reference has already been made to the letters in mid to late December 2009 from WHT’s solicitors to the solicitors for Bunnings expressing the view that provision of a copy of the BAA to Mitre 10 was required under the provisions of the RFR Agreement.[15] Nevertheless, it is necessary to consider the nature and extent of the RFR Agreement requirements for the purpose of determining the effect of the 1 December 2009 letter, particularly with respect to the arguments raised by WHT and Bunnings regarding the tender of non-contractual performance and election.[16]
[15]See above, paragraph 18.
[16]See below, paragraphs 73 and following.
The meaning of the expression “first right of refusal” or “right of first refusal” is not a term of art independent of definition in particular circumstances by reference to the terms of the agreement which creates that right. This was the conclusion of the New South Wales Court of Appeal in Goldmaster Homes Pty Ltd v Johnson.[17] Bryson JA (with whom Mason P and Stein AJA agreed) said in that case:[18]
“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.[19] 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 a 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 are obviously more details which need 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. …”
[17](2006) NSW ConvR 56-142.
[18](2006) NSW ConvR 56-142 at [39] and [40].
[19]Woodroffe v Box (1954) 92 CLR 257 at 258 (Fullagar and Kitto JJ), which is set out in Goldmaster Homes Pty Ltd v Johnson (2006) NSW ConvR 56-142 at pp 59, 673-4.
In citing the Goldmaster Homes case to establish that a “first right of refusal” is not a legal term of art, Farrands, in The Law of Options and other Pre-emptive Rights (2009), directed attention to the scope and detail of the offer made. In so doing, Farrands helpfully summarised the state of the authorities, as follows:
“Unless the terms of the first right of refusal specifically require it, there is nothing in the nature of a first right of refusal which requires the opportunity to be presented to the holder of the right to be in a “high state of definition”; the holder need only be given a reasonable opportunity to refuse it, or such opportunity as specifically prescribed by the terms of the right.[20]
It should be noted, however, that the term “first right of refusal” does not have a single meaning. Each case must be decided according to the terms of the particular bargain and must not be determined according to a particular label such as option, conditional contract, or right of pre-emption. In each case, the proper construction of the contract will determine precisely what was agreed.[21]”
[20]See Goldmaster Homes Pty Ltd v Johnson [2006] NSW ConvR 56-142; [2004] NSWCA 144 at [35]-[40].
[21]See Pata Nominees Pty Ltd v Durnsford Pty Ltd [1988] WAR 365 at 372 per Burt CJ, cited with approval by Young J in Beneficial Finance Corp v Multiplex Constructions (1995) 36 NSWLR 510 at 529; see also Goldmaster Homes Pty Ltd v Johnson [2006] NSW ConvR 56-142; [2004] NSWCA 144 at [39] per Bryson JA with whom Mason P and Stein AJA agreed.
In my opinion, it is clear that, as with any other commercial agreement, the pre-emptive rights or right of first refusal provisions of the RFR Agreement must be construed with a view to giving effect to their commercial purpose, consistent with the approach enunciated by the High Court in cases such as Upper Hunter County District Council v Australian Chilling and Freezing Co.[22] A similar approach was taken in Beaconsfield Gold NL v Allstate Prospecting Pty Ltd,[23] where Hargrave J said that pre-emptive rights provisions in a joint venture agreement “… operate to ensure that existing participants are empowered to exclude new participants by purchasing the outgoing participant’s interest if they so desire”.[24] As to these provisions, Hargrave J commented:[25]
“34. These objectives may be defeated if pre-emptive rights provisions are interpreted narrowly. In my view, in interpreting pre-emptive rights provisions, a court should keep this steadily in mind. Where there are two interpretations of a pre-emptive rights clause in a joint venture agreement which are reasonably open, that which accords with the objective purpose of the provision should be preferred”.
[22](1967) 118 CLR 429, particularly at 436-7 (Barwick CJ), the passage set out above, paragraph 31.
[23][2006] VSC 320.
[24]Beaconsfield Gold NL v Allstate Prospecting Pty Ltd [2006] VSC 320 at [33].
[25]Beaconsfield Gold NL v Allstate Prospecting Pty Ltd [2006] VSC 320 at [34].
Although it is clear from the decision of the High Court in Woodroffe v Box,[26] particularly as discussed by Bryson JA in Goldmaster Homes Pty Ltd v Johnson,[27] that a first right of refusal is not a legal term of art, a useful summary of a number of decisions in the State courts of the United States is provided. These decisions illustrate the extent of judicial understanding of the expression “first right of refusal” in that country.[28] It appears from those summaries, and from Woodroffe v Box[29] and Goldmaster Homes Pty Ltd v Johnson,[30] that the approach to construction of agreements in the nature of a first right of refusal in part depends upon the subject matter of the right. For example, if the right of first refusal is granted with respect to a defined piece of land or other property, a quite brief statement of the price and terms of sale may be all that is required to enable the grantee of the right to decide whether or not to exercise that right and match the price and terms at which the property is offered for sale. Accepting that there is no general custom and practice in Australia which would give meaning to the expression “right of first refusal”, I am of the opinion that the Kentucky case referred to by Bryson JA does, at least in general terms, epitomise the underlying commercial purpose of agreements such as the RFR Agreement. Bryson JA summarised this case in Goldmaster Homes as follows:[31]
“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.’”
[26](1954) 92 CLR 245.
[27](2006) NSW ConvR 56-142 at [34], p 59, 675.
[28]Goldmaster Homes Pty Ltd v Johnson (2006) NSW ConvR 56-142 at [24]-[33], p 59, 674-5.
[29](1954) 92 CLR 245.
[30](2006) NSW ConvR 56-142.
[31]Goldmaster Homes Pty Ltd v Johnson (2006 NSW ConvR 56-142 at [31], p 59, 675.
In my opinion, the broad proposition that flows from these authorities is that in construing an agreement such as the RFR Agreement, regard must be had to its commercial purpose, which must be determined having regard to the nature of the property the subject of the right of first refusal and the provisions of the agreement itself. Nevertheless, it is clear that the general purpose of an agreement of this nature is to put the beneficiary of its terms in a position of being able to assess the third party offer or agreement which has triggered the operation of the right of first refusal provisions.
If the attributes of the property to which the right applies are not complex, provision of the essential terms of price and time and method of payment proposed alone are likely to be sufficient, subject to the provisions of the agreement. In such circumstances, the grantee is able to asses its own position, and come to an informed decision as to whether it should take advantage of the right. On the other hand, where the property is not of a simple character but is, rather, the sale of something, such as a business, which is likely to be sold subject to an array of complicated terms and conditions together with subsidiary rights and arrangements, such as a complex commercial lease, then it is likely that the grantee of the right will not be able to assess its position without being provided with a complete copy of the documentation for the proposed sale to a third party.
There may also be circumstances where, although the property the subject of the right of first refusal is complex in its nature and extent, such as the rights of a party under a joint venture agreement, little information is required to be given by one party to the other party or parties to that joint venture agreement under a right of first refusal agreement with respect to the proposed sale of a party’s interest under that agreement. In these circumstances, identification of the parties, the subject matter of the sale and the sale price to the holder of the right of first refusal may be sufficient, because that person has full knowledge of the joint venture arrangements and will have access to all the information necessary to determine its or their position and to decide whether to exercise the right to purchase.[32]
[32]See, for example, Tern Minerals NL v Kalbara Mining NL (1990) WAR 486.
In my opinion, the provisions of the RFR Agreement and the nature of the property the subject of that agreement support the view that the underlying commercial purpose would, in the context of those circumstances, require the opportunity to be presented to the holder of the right in a “high state of definition”, to use Farrands’ words.[33] The necessity for this approach is demonstrated by the nature and complexity of the “third party offer” as contained in the BAA, though the provisions of the BAA are not themselves relevant to the construction of the provisions of the RFR Agreement which was made well before the execution of the BAA.[34]
[33]See above, paragraph 38.
[34]See RAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 (FC).
It was submitted by WHT and Bunnings that the RFR Agreement should be construed contra proferentem against Mitre 10 as the proferens of that agreement. In support of this submission, reference was made to the discussion of “Construction Contra Proferentem” by Lewison in The Interpretation of Contracts. Lewison’s principal proposition in this respect is: “Where there is a doubt about the meaning of a contract, the words will be construed against the person who put them forward”.[35] Even accepting that the evidence indicates that Mitre 10 was the proferens for the purposes of the possible application of this rule of construction, I do not accept that it is applicable as, for the reasons indicated, I find no relevant “doubt” with respect to the construction of the provisions of the RFR Agreement which have been considered which would trigger its application.
[35]The Interpretation of Contracts (4th ed, 2004), paragraph 7.08; and see the footnote to the proposition (p 260, n78). “This paragraph was recast in the previous edition of this book in the light of the illuminating discussion of this principle by Campbell J in North v Marina [2003] NSWSC 64. The recast paragraph was referred to with apparent approval by the CA in Lex Holdings Plc v Stainforth [2006] EWCA Civ 988 (and appears also to have met with the approval of Campbell JA: Rava v Logan Wines [2007] NSWCA 62)”.
I turn now to the provisions of the RFR Agreement which are, critically, contained in clause 1, as noted.[36] In my view, these provisions indicate five elements which are relevant in the present circumstances.
[36]See above, paragraph 33.
The first is the chapeau to clause 1, which provides for triggering events which, if one occurs, will trigger the obligations of WHT under the RFR Agreement. Once those obligations are triggered, the second element is the provision of notice and sufficient details of the offer the subject of the triggering event in accordance with the terms of sub-clause 1.1.
The third element is the enabling and implementation provisions of sub-clause 1.2 which provide the machinery which will enable the beneficiary of the RFR Agreement to obtain a contract to purchase the property sold. This is achieved by the provisions of paragraph 1.2(a), which provide for an option to purchase in favour of the beneficiary “in all respects upon the same terms and conditions set out in the offer or statement (“option to purchase”)”. An “option period” of 28 days is provided for from the date of the submission of the offer or statement by WHT to the beneficiary. Paragraph 1.2(b) enables WHT to enter into a contract to effect the proposed sale to the third party purchaser provided that contract is expressed to be subject to the option to purchase for the option period provided for in paragraph 1.2(a) of the RFR Agreement.
The fourth element is provided by the provisions of sub-clause 1.3, which enables WHT to complete the sale to the third party purchaser in the event that the option to purchase is not exercised in accordance with paragraph 1.2(a). For this to occur, the sale to the identified purchaser must be in accordance with the provisions of sub-clause 1.1, and must take place at the same price and otherwise in all respects upon the same terms and conditions as set out in the offer or statement. Again, the reference to the “offer” or “statement” is a reference to the provisions of sub-clause 1.1.
The fifth element is provided by sub-clause 1.5, which preserves the operation of the right of first refusal agreement on subsequent occasions if a valid and binding contract between WHT and the identified purchaser has not been entered into within 90 days after the submission of the offer or statement pursuant to sub-clause 1.1.
In my view, each of these elements provided for in clause 1, as described, is essential to the effective operation of those provisions and, consequently, it cannot be said that sub-clause 1.2, particularly paragraph 1.2(a), is a provision independent of the operation of sub-clause 1.1. More specifically, I am of the opinion that the nature of the “offer to sell the business” for the purposes of the provisions of paragraph 1.2(a) is, in effect, defined by the provisions of sub-clause 1.1. Consequently, on the basis of the structure and content of clause 1, I am unable to accept the submissions by WHT and Bunnings that paragraph 1.2(a) contains a provision or requirement independent of sub-clause 1.1.
It is correct that the provisions of sub-clause 1.1 do contemplate the possibility of a “statement in writing of all terms and conditions” if the offer from the third party purchaser is not itself in writing. If, on the other hand, the offer received by WHT is in writing, then these provisions require, in my view, the provision of “a true and complete copy” of the written offer received from the third party purchaser. The BAA is, insofar as it is to be treated as an offer for the purposes of the RFR Agreement, clearly an offer in writing and one of significant complexity, as is discussed further below.
The provisions of sub-clause 1.1 do not, in my opinion, give WHT a choice as to whether it provides a copy of a written offer received from a third party purchaser or a statement in writing of all the terms and conditions of that offer (whether prepared by it or prepared on its behalf by its legal advisers). The provision for alternative courses in sub-clause 1.1 may, at first sight, appear strange or contradictory, but when these provisions are read in light of the four possible triggering events, or types of triggering events, specified in paragraphs (a) to (d) of the chapeau to clause 1, the reason for this becomes clear.
In my view, this follows from the nature of the possible events specified. This is because they contemplate the possibility of the sale of a variety of types of property which, by their nature, may give rise to the need for offers to a greater or lesser degree of complexity, as indicated in the judgment and examples considered in Goldmaster Homes Pty Ltd v Johnson.[37] For example, WHT may propose to sell the controlling interest in its shares on quite simple terms and conditions, for example, under an agreement concerned principally with price and its payment. An event such as this might lend itself to an oral offer by the proposed third party purchaser which, in turn, would sensibly be the subject of a “true and complete statement in writing” prepared by WHT in accordance with the requirements of the second alternative provided for in sub-clause 1.1 of the RFR Agreement.
[37](2006) NSW ConvR 56-142.
Bunnings Agreement (BAA)
The BAA is styled a “Business Acquisition Agreement (Wallington)” between Bunnings Group Limited (as purchaser), Wallington Hardware and Timber Pty Ltd (as seller) and John David Webb and Prudence Mary Webb (as guarantors). Its cover sheet indicates that it was prepared by the Legal Affairs Department of the Bunnings Group Limited.
The main agreement consists of 21 operative clauses, most of which are sub-divided into multiple sub-clauses. The BAA includes seven schedules, though as the evidence indicated, “Schedule 7 – Contracts” was omitted in the copy of the BAA which was provided to Mitre 10. Mitre 10 was subsequently advised that Schedule 7 should read “Nil”.
The operative provisions of the BAA deal with the types of matters that would be expected in an agreement of this nature. It was not suggested in evidence or submissions that the BAA contains unusual or onerous provisions. Nevertheless, no more than it could be suggested that the expression “first right of refusal” is a term of art, could it be suggested that a business acquisition agreement prepared for the transfer of ownership of a substantial business could be regarded as something in the nature of a standard form document (the terms of which are well known to those familiar with business acquisitions or transfers of this type, such as a corporation like Mitre 10). The position may be different where generally available standard form agreements, such as those produced for commercial transactions by the Law Institute of Victoria, are used. There is, however, no suggestion of the use of anything in the nature of a standard form for the BAA agreement in the present circumstances.
Some particular provisions of the BAA were the subject of evidence and submissions. These included clause 3 (Purchase Price), clause 4 (Conditions Precedent), clause 9 (Payment of Purchase Price) and Schedule 6, which contains an agreed form of lease, the execution of which is a condition precedent to completion of the BAA under the provisions of paragraph 4.1(a) (“the proposed Lease”).
As the proposed Lease indicates, it was prepared by Lander & Rogers as the solicitors for Bunnings. The lease is a commercial lease containing detailed provisions which are to be found in its 20 clauses and schedule. There is no suggestion in the evidence or submissions that the lease is anything in the nature of a standard form document. In any event, like the BAA, it may contain “boilerplate” provisions, but it does, nevertheless, contain important provisions which appear to have been prepared to accommodate this particular transaction between WHT and Bunnings.
The proposed Lease is for a term of ten years with options for renewal for five further terms of five years each. Rent for the first year of the term is specified as $500,000 per annum with provision for market review in accordance with clause 13.1 of the proposed Lease for the first year of each of any further terms subject to a proviso that the rent payable for the year immediately following each market review date must not be less than 90% nor exceed 110% of the rent payable for the year immediately preceding the relevant market review date. Provision is made for percentage rent increases for each of the remaining years of the lease term (apart from the first year) and for the second and subsequent years of each of any renewed term by way of a 3% increase in accordance with sub-clause 13.7 of the proposed Lease. The proposed Lease also contains a pre-emptive right to purchase the freehold in favour of Bunnings in accordance with the provisions of sub-clause 16.10.
Provision is made in clause 17 of the proposed Lease for upgrade works which may be requested by Bunnings, as tenant. Sub-clause 17.4 provides for a construction cost limit collar and a construction cost limit cap, which are relevant to the extent of the liability of the landlord to meet the construction cost. Provision is made in sub-clause 17.7 for an “upgrade rent” which must be paid for the upgrade works monthly in advance, commencing on the day after the date of practical completion of the upgrade works. Provision is made in paragraph 17.7(b) for the calculation of the amount of “upgrade rent”, in the following terms:
“17.7 Upgrade Rent
…
(b) The amount of Upgrade Rent payable by the Tenant for the Upgrade Works for each year is to be calculated in accordance with the following formula:
W x C = R
Where;
W = Construction Cost;
C = the lower of:
(i)100 basis points above the ‘Average Mid’ 7 year Interest rate swap rate as displayed on Reuters page ‘IRSW10AM’ at about 10.00am EST on the date of the Upgrade Notice, but if the date of the Upgrade Notice is not a Business Day then the equivalent interest rate calculated for the immediately proceeding Business Day; and
(ii) the Passing Yield of the Premises, determined as at the date of Practical Completion; and
R = Upgrade Rent.”
Sub-clause 17.16 contains definitions of terms such as “Construction Cost”, “Cost Limit”, “Defects Liability Period”, “Passing Yield” and “Practical Completion”. Each of these definitions is critical to a proper understanding of the provisions of clause 17.
Clause 18 of the proposed Lease also contains elaborate provisions with respect to redevelopment of the premises. Under sub-clause 18.2, the tenant may request redevelopment, but provision is made, in sub-clause 18.4, for the possibility of an election by the landlord not to undertake redevelopment works. In the event that the landlord refuses to undertake redevelopment works, paragraph 18.4(b) requires the landlord to offer to sell the premises to the tenant in accordance with clause 19 of the proposed Lease, which provides an option to purchase in favour of the tenant in this event. A consequence of redevelopment work is the application of a redevelopment rent under sub-clause 18.8. These provisions contain a formula for the calculation of the redevelopment rent, similar to the provisions contained in paragraph 17.7(b) with respect to upgrade rent.
Both sub-clauses 17.7 and 18.8 make provision in the context of the upgrade rent and redevelopment rent provisions, respectively, for an extension of the term of the proposed Lease. In the case of sub-clause 17.7, the upgrade rent provisions extend the term of the proposed Lease to expire five years from the date of property upgrade works. In the case of sub-clause 18.8, they make provision to extend the term of the proposed Lease to expire ten years from the date of practical completion of the redevelopment works.
Clause 21.10 of the BAA contains confidentiality provisions. In the course of his evidence, Mr Webb said that he understood that these provisions prevented him from providing Mitre 10 with a copy of the BAA when he purported to give notice pursuant to the RFR Agreement by way of the 4 November 2009 email. Bunnings submitted that a proper reading of sub-clause 21.10 and the provisions of sub-clause 4.1, particularly paragraph 4.1(g), indicate that there was no obstacle under the terms of the BAA to WHT providing Mitre 10 with a copy for the purposes of clause 1 of the RFR Agreement. In any event, it was submitted that, as between Mitre 10 and WHT, there was an obligation on WHT under the RFR Agreement to provide a copy of the BAA regardless of any terms of that agreement or other agreements between WHT and Bunnings which might have provided to the contrary. It is not necessary to take these matters further for present purposes.
4 November 2009 email
The 4 November 2009 email purported to be a communication of details of the proposed sale of the business by WHT to Bunnings for the purposes of the RFR Agreement. On the basis of the provisions of clause 1 of the RFR Agreement, which have been considered, WHT was either to provide a “true and complete copy of any bona fide offer” or “a true and complete statement in writing of all terms and conditions (if not in writing) of the proposed sale, assignment, lease or other dealing parting with possession of the Licensed Premises …”.[38] There was no suggestion that the BAA was anything other than a “bona fide offer”.
[38]See sub-clause 1.1 of the RFR Agreement; see above, paragraph 33.
It does not appear that Mr Webb thought or would suggest that the BAA was not to be regarded as an offer in writing for the purposes of the RFR Agreement. Indeed, in my view, the contrary view is unarguable and, as has been noted, this position was confirmed in correspondence in late December between solicitors acting for WHT and those acting for Bunnings.[39] In spite of this, Mr Webb’s evidence was that he thought WHT had a dilemma in seeking to comply with both the terms of the RFR Agreement and the BAA because of the confidentiality provisions in the agreement with Bunnings. It is for this reason that he chose to attempt “a true and complete statement in writing of all the terms and conditions …” as provided for in sub-clause 1.1 of the RFR Agreement, by way of the 4 November 2009 email. It also appears that he was comforted in this approach by the inference he had drawn as a result of ongoing communications with Mitre 10 which, at least to Mr Webb, suggested that Mitre 10 would not be in a position to finance the purchase of the business in any event.
[39]See above, paragraph 18.
In my view, it would be putting the position too high to say that Mr Webb thought that the notification of Mitre 10 of the proposed sale to Bunning was merely a formality. Nevertheless, it does otherwise seem difficult to explain why an experienced man of business, such as Mr Webb, would have attempted to summarise a complex commercial transaction of the type provided for in the BAA in relatively short email summary form, prepared personally by Mr Webb, without the benefit of legal advice. Also puzzling was Mr Webb’s inability to say in cross-examination that he had any clear recollection that he had prepared the email and the summary with the BAA in front of him.[40]
[40]And see below, paragraph 69.
The 4 November 2009 email was, omitting formal parts, as follows:
“STRICTLY PRIVATE AND CONFIDENTIAL
RECIPIENT ONLY
Dear Mark,
Thanks for the time on the phone earlier today.
It is with mixed emotions and a heavy heart, that I advise this letter confirms that I have signed a conditional contract with Bunnings Group Limited for the sale of my business.
Subject to Mitre 10 not exercising its right under the ‘Right of First Refusal Agreement’ (ROFRA) I expect at this stage to proceed with the sale.
As I explained on the phone, this is not the first time I have spoken to Mitre 10 regarding a possible sale of my business and its option to to purchase it under the ‘ROFRA’.
Between July and September last year, considerable discussion occurred with our previous CEO, whereby I explained I had received an offer from Bunnings to purchase my business. Mitre 10 at that time chose not to exercise its option, however, for a variety of reasons, I decided not to proceed with the sale.
Now, more than a year on, plus a very persistent buyer keen to pursue a sale, I have decided it is time to move on.
I would ask if Mitre 10 would respond with the 28 day period as set out under clause 1.2A of the ‘ROFRA’ as to whether it wishes to match the Bunnings offer.
Mark, given the nature of this matter, I would respectfully seek your assurance as to the confidentiality of this email and its contents and limit the awareness to an absolute ‘need to know basis’.
As I am sure you would appreciate, the sensitivity required at this stage of proceedings is critical particularly given that no notification has yet been given to my staff, my customers, suppliers or the marketplace at large. Furthermore, as this contract is conditional, whilst unexpected, there exists the possibility the sale may not go through thus creating further anxiety.
Under such circumstances, I would further request that in the event Mitre 10 do not wish to or are unable to match the offer, caution in passing on certain elements of the offer to any potential Mitre 10 member as a possible purchaser occurs. I say this as the nature of our membership and industry is such that we love to know the perceived value of a business regardless of whether we want to buy one. I think the phrase ‘Tyre kicker’ may well describe this interest.
On this very topic, as you know, I share a very close personal relationship with the Fagg Brothers. Whilst in my opinion it would be highly unlikely, they are the only real possible opportunity I feel within the membership to match the offer in the event Mitre 10 does not proceed.
I will handle this matter directly with them under confidentiality thus not requiring you to pass on any further commercial terms and conditions of the offer.
For the reasons of a series of strictly enforced ‘Non Disclosure and Confidentiality Agreements’, I am unable to provide the specific written offer. However, by way of summary of the Bona Fide nature of the offer, I will list its comparable key elements in order for Mitre 10 to evaluate the offer and determine whether it wishes to match it.
SUMMARY OF OFFER:
1. Sale of Business:-
For the purchase of the Business, Plant and Equipment, Fixed Assets and stock $8.0 million from equivalent original offer.
2.Lease of Premises:-
A 35 year lease of the premises with an initial term of 10 years and subsequent 5 x 5 year term options.
Commencement Rent: $550,000.00 per annum.
Annual rent review to an agree formula with market review each 5 years.
3.Upgrade works to Premises:-
An option to upgrade the buildings during the first two year period of up to $1.5 million and a further $4.0 million within a 3 year period following
the initial upgrade of $1.5m
Upgrade rent applies to an agreed formula.
4.Redevelopment of the Premises:-
An option to redevelop the entire premises to an agreed footprint as either a developer or Landlord.
Redevelopment rent to an agreed formula.
5.Sale of Freehold:-
An option to sell the freehold property at any time after the initial 2 year period.
Price:The greater of either $6.0 million or at a valuation as agreed between the parties.
In addition to the price, upgrade capital costs are to be added less adjustments to an agreed formula.
6.Employees:-
All employees will be offered re-employment by Bunnings Group Limited on terms and conditions no less favourable to their present contracts and all entitlements will be transferred to Bunnings Group Limited including Annual Leave, Sick Leave and Long Service Leave.
In conclusion, Mark, if there are any questions regarding the contents of this email or that matter of the sale at large, please contact me personally on …
Thank you for time in working through this issue with me.”
In the course of cross-examination, the terms of the BAA were put to Mr Webb and he was asked to explain how the contents of the “Summary of Offer” contained in the 4 November 2009 email were prepared.[41] As a result of that cross-examination, a number of errors in the summary were put and conceded by Mr Webb.
[41]And see above, paragraph 67.
A significant error emerged immediately with respect to the sale price of the business, which, though stated as $8 million in the summary, was later said by Mr Webb to be $7.2 million. WHT sought to minimise the significance of the error, arguing that it was explicable in terms of a mistake as a result of the inclusion of GST and on the basis of the complexity of the provisions for calculation and payment of purchase price contained in clauses 3 and 8, respectively, of the BAA. Reliance was also placed on evidence given by Mr Mark Burrows that the price of $8 million still represented good value and, consequently, $7.2 million was even better value. The error with respect to the price was updated subsequently to the 4 November 2009 email by an email from Mr Webb to Mr Burrows dated 23 November 2009.
Other errors in the summary also emerged in the course of Mr Webb’s cross-examination. These included a misstatement of the party entitled to request redevelopment of the premises (under the provisions of clause 18 of the proposed Lease). This is potentially a significant matter from the point of view of any party considering whether to enter into a transaction of the type outlined in the 4 November 2009 email. Other minor errors in the summarisation were also identified. Nevertheless, and quite apart from these errors, the summary does not give any information in relation to the “agreed formula” for rent review, the calculation of upgrade rent or redevelopment rent or the provisions for variation of the term of the proposed Lease as a result of upgrade works or redevelopment works.
Consequently, it is clear, in my view, that the 4 November 2009 email would not comply with sub-clause 1.1 of the RFR Agreement because it did not provide a “true and complete copy” of the Bunnings offer as contained in the BAA and, even if the provisions of sub-clause 1.1 enabled WHT to provide a “true and complete statement”, the 4 November 2009 email also fails in that respect, as it was neither “true” nor “complete”. In expressing this opinion, I am mindful of the position of the parties, which is that it is common ground that the 4 November 2009 email did not comply with the RFR Agreement. It is, however, necessary to consider the nature of the deficiencies because the parties’ common ground in this respect does not extend to the consequences of non-compliance, nor to the effect of the 1 December 2009 letter.[42]
[42]And see above paragraph 36.
1 December 2009 letter
The 1 December 2009 letter from Mr Mark Burrows, on behalf of Mitre 10, to Mr John Webb, on behalf of WHT, was, as the evidence made very clear, sent in the context of a situation where no copy of the BAA was forthcoming. This was in spite of requests for provision of a copy of the BAA so that Mitre 10 could assess its position with respect to matching the Bunnings offer, as was put in the 4 November 2009 email. At all critical times, Mr Webb remained resolute in his refusal to provide a copy of the BAA to Mitre 10, on the basis that, were he to provide a copy, the confidentiality obligations of WHT under the BAA would be breached.
Omitting formal parts, the 1 December 2009 letter was in the following terms:
“RE WALLINGTON MITRE 10 HOME & TRADE
We refer to the proposed sale of your business known as Wallington Mitre 10 Home & Trade (Business) located at 365 Grubb Road, Drysdale, Victoria (Premises).
We advise that Mitre 10 Australia Pty Ltd and/or its nominee (NewCo) is willing to tender a bid to purchase the business from Wallington Hardware & Timber Pty Ltd (Vendor) pursuant to its Right of First Refusal dated 26 March 1991. Mitre 10/NewCo therefore submits a bid to purchase on the following terms and conditions, all terms and conditions subject to confirmation of the Bunnings offer:
·A Sale of Business Agreement to be entered by the parties to purchase:
o the Business, Plant and Equipment, fixed Assets and Stock and all intellectual property pertaining to the Business at a purchase price of $7.2 million as per Bunnings offer;
o a 35 year lease of the Premises with an initial term of 10 years and subsequent 5 x 5 year term options with a Commencement Rent of $550,000 per annum, annual rent review to an agreed formula with market review every 5 years; and
·The parties agree that the purchase of the Business will attract no GST liability as considered sale of a going concern.
·An option for the Landlord to upgrade the buildings on the Premises during the first two year period to a value of up to $1.5 million and a further $4.0 million within a three year period following the initial upgrade of $1.5 million. Upgrade of rent applies to an agreed formula.
·An option for the Landlord to redevelop the entire Premises to an agreed footprint as either a developer or as the Landlord. Redevelopment rent to be set by an agreed formula.
·An option for the Landlord to sell the freehold property to NewCo at any time after the initial 2 year period. The purchase price will be the greater of either $6.0 million or a valuation as agreed between the parties. In addition to the price, upgrade capital costs are to be added less adjustments to an agreed formula.
·All employees of the Business will be offered re-employment by NewCo on terms and conditions no less favourable to their present contracts and all entitlements will be transferred to NewCo including Annual Leave, Sick Leave and Long Service Leave;
·Vendor agrees to a non-competition clause in Sale of Business Agreement for a period of 5 years from the date of the Agreement in a 200 km radius of the store;
·The purchase at all times to be subject to:
o Strict confidentiality of the terms of this bid and all negotiations surrounding it, including any resulting agreements and documentation;
o Approval by the purchasers entities’ boards of the purchaser;
o Confirmation of the terms of Bunnings’ original offer;
o Approval of finance for the full purchase price by Mitre10/NewCo’s financiers;
o Satisfactory outcome of a due diligence review to be performed by Mitre 10/NewCo and/or their advisers of the financial and operational performance and records of the Business which the Vendor will facilitate to the best of its ability;
o Continued operation by the Vendor of the Business in the most effective and efficient manner possible to maintain and develop the most productive customer and staff relationships and to maximise the financial performance of the Business without causing any one-off or non-recurring transactions to adversely impact upon the Business’ financial results or the criteria on which the purchase price is calculated;
o Vendor to provide warranties in the Sale of Business Agreement relating to but not limited to compliance with all laws by the Business, compliance with all zoning, use, codes and OH & S requirements and environmental laws at the Premises.
Please contact … for further details.
Please sign below as acceptance of this offer.
If this offer is to be refused, Mitre 10 may exercise its rights under the Right of First Refusal for any subsequent offers to purchase the Business made to the Vendor.”
The letter concluded with the signature of Mr Burrows as Chief Executive Officer of Mitre 10 Australia Ltd and also left a line space for a signature from John Webb on behalf of WHT.
The 1 December 2009 letter certainly contains a reference to specific commercial terms but, significantly in my view, contains an offer to purchase the business “at a purchase price of $7.2 million as per Bunnings offer” and specifically states that the purchase is at all times to be subject to: “… Confirmation of the terms of Bunnings’ original offer”.
WHT and Bunnings argued that the 1 December 2009 letter constituted an offer capable of acceptance as it included all essential elements, the parties, the description of the subject matter, the price and terms. In relation to the reference to the purchase being subject to confirmation of the terms of Bunnings’ original offer, it was submitted that this should be regarded as a condition in the nature of that considered by the High Court in Perri v Coolangatta Investments Pty Ltd,[43] rather than any omission or incompleteness in the substance of the offer. Mitre 10, on the other hand, submitted that the 1 December 2009 letter is no more than an indication of a desire to exercise rights under the RFR Agreement when and if WHT complied with its obligations under that agreement and, particularly, provided a copy of the BAA to Mitre 10.
[43](1982) 149 CLR 537.
I accept the Mitre 10 submissions in relation to the effect of the 1 December 2009 letter for the reasons which follow.
The evidence indicated that the 1 December 2009 letter had been the subject of legal advice from Mitre 10’s General Counsel. However, in the context of the then prevailing circumstances, known to both WHT and Mitre 10, the appropriate question is “Now, what would anyone when he received that letter fairly understand to be the meaning of it?”.[44]
[44]Carter v Hyde (1923) 33 CLR 115 at 126 (Isaacs J); and see Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673.
Adopting this approach, I am of the opinion that the second paragraph of the 1 December 2009 letter is to be read as a statement by Mitre 10 that it was willing to exercise the option to purchase the business under the provisions of the RFR Agreement if and when WHT complied with its obligations under that agreement and provided “a true and complete copy” of the Bunnings offer, which required provision of a copy of the BAA. In the meantime, and having regard to the longstanding commercial relationship between WHT and Mitre 10 (which is evident from the 4 November 2009 email in addition to the evidence to this effect at trial) Mitre 10 would submit a “bid” to purchase the business on the basis set out in the 1 December 2009 letter. In my view, the “bid” cannot be taken as an offer capable of acceptance, in the light of the then prevailing circumstances known to both parties, as Mitre 10 did not have a copy of the BAA and had no way of discovering the “terms and conditions of the Bunnings offer”.
In my opinion, the references to the Bunnings offer as contained in the 1 December 2009 letter, particularly the reference to the purchase being subject to confirmation of that offer, do not change this position. The answer is not provided by analysing these references as something in the nature of a condition, whether precedent or subsequent, or on the basis considered in Perri v Coolangatta Investments Pty Ltd[45] because the references to the Bunnings offer give no indication as to the consequences of its “confirmation”. The consequences may, for example, include a position that Mitre 10 is to assess the Bunnings offer and, if it was more advantageous than the terms to the extent specified in the 1 December 2009 letter, then it would seek to take advantage of those more advantageous terms. On the other hand, if the Bunnings offer were less advantageous, it may choose to reaffirm the more advantageous terms as set out in the 1 December 2009 letter. Another possibility is that Mitre 10 might regard the Bunnings offer as particularly unattractive and, consequently, decide not to proceed with the purchase. None of these possibilities, and there may well be many more, are even hinted at in the 1 December 2009 letter. It would not be possible to imply terms into that letter to accommodate these difficulties without the Court redrafting the offer, and a possible contract, on behalf of the parties, a position which is clearly inappropriate and beyond the function of courts.
[45](1982) 149 CLR 537.
The request in the second-last paragraph of the 1 December 2009 letter, addressed to Mr Webb, to sign by way of acceptance of “this offer” should be seen as inelegant and inaccurate because, in my opinion, if any attempt is made to analyse the letter it is, for the reasons indicated, more properly described as an invitation to treat, rather than an offer in a contractual sense. Additionally, reading the sentence in context and on the basis of the approach I have applied with respect to the contents of this letter, I am of the view that the use of the word “offer” is not of any significance. Additionally, it is clear from the authorities that courts will always look beyond “labels” which parties have applied to documents or transactions and so the use of the word itself in its present context could not, itself, be treated as decisive.[46]
[46]See, for example KJRR Pty Ltd v Commissioner of State Revenue [1999] 2 VR 174(a) at 176 (Tadgell JA); and see Lewison The Interpretation of Contracts (4th ed), para 9.07.
The word “offer” is repeated in the final paragraph of the 1 December 2009 letter but, for the reasons indicated, I do not regard this as significant either. Of more significance is the reference to the possibility of Mitre 10 exercising its right under the RFR Agreement for any subsequent offers to purchase the business which are made to WHT. It is not clear whether this is intended to be a reference to sub-clause 1.5 of the RFR Agreement which preserves its operation in the event that a proposed sale does not proceed, either at all or on the basis of the same terms and conditions as contained in the offer notified under the RFR Agreement, as required by sub-clause 1.3. In the context of the 1 December 2009 letter and the circumstances then prevailing, as known to both parties, I am of the opinion that this paragraph should be read as reinforcing the first proposition in the second paragraph of the letter; namely, that Mitre 10 was interested and willing to tender a bid to purchase the business under the terms of the RFR Agreement if and when WHT provided a notice of an offer in accordance with the terms of that agreement.
Position following 1 December 2009
WHT rejected the “bid” contained in the 1 December 2009 letter from Mitre 10 on the basis that the letter was the exercise by Mitre 10 of its rights under the RFR Agreement by reference to the contents of the 4 November email. WHT and Bunnings argued that WHT was entitled to reject the 1 December 2009 letter as a counter-offer by Mitre 10 which failed to exercise the option to purchase provided for in paragraph 1.2(a) of the RFR Agreement according to its terms. It was argued, on the basis of BS Stillwell & Co Pty Ltd v Budget Rent-a-Car System Pty Ltd,[47] that the 1 December 2009 letter was not an unequivocal acceptance of the option to purchase, which required acceptance according to the mirror principle of contractual acceptance. Consequently, it was submitted, the letter was to be regarded as a counter-offer on the Stillwell’s case reasoning, with the result that WHT was entitled to accept or reject it as it chose. WHT, it was submitted, had rejected the counter-offer by letter dated 2 December 2009.[48]
[47][1990] VR 589 (Appeal Division).
[48]See above, paragraph 16.
It was further submitted by WHT and Bunnings that once the 1 December 2009 letter had been rejected as a counter-offer to WHT’s notification under the RFR Agreement, Mitre 10 had no further rights under the RFR Agreement. This was put on the basis that Mitre 10 had elected to accept WHT’s tender of non-contractual performance as a result of the deficiencies in the 4 November 2009 email and because, as it was submitted, the 1 December 2009 letter is properly characterised as a counter-offer and, consequently, a failure to exercise the option to purchase under paragraph 1.2(a) of the RFR Agreement. WHT and Bunnings also argued that the position was irretrievable from Mitre 10’s perspective as the 28 day period during which the option to purchase was exercisable under the provisions of paragraph 1.2(a) of the RFR Agreement had expired.
This position as put by WHT and Bunnings assumes that the 1 December 2009 letter is properly characterised as a counter-offer to an offer contained in the 4 November 2009 email which was pursuant to the RFR Agreement, though deficient in terms of “contractual performance” by reference to the terms of that agreement. For the reasons indicated, I do not accept that the 1 December 2009 letter was anything more than an invitation to treat and a communication on the part of Mitre 10 to WHT that it wished to avail itself of its rights under the RFR Agreement if and when WHT complied with its obligations under that agreement and thereby properly communicated the Bunnings offer. Consequently, the 1 December 2009 letter is not responsive to any option to purchase under paragraph 1.2(a) of the RFR Agreement, as that option had not arisen because the provisions of sub-clause 1.1 of that agreement had not been complied with. It follows that the reasoning in Stillwell’s case was not applicable.
It also follows that the 1 December 2009 letter did not constitute the exercising of any “right” which could be said to be inconsistent with any of the rights to which Mitre 10 was entitled under the provisions of the RFR Agreement. Consequently, there is, in my view, no basis for the submissions put on behalf of WHT and Bunnings that Mitre 10 elected to accept a tender of non-contractual performance by WHT with respect to its obligations under the RFR Agreement with the result that it lost its rights under that agreement.[49]
[49]See Term Minerals NL v Kalbara Mining NL (1990) 3 WAR 486.
The evidence does establish that Mitre 10 was concerned to secure its purchase of the WHT business so that one of the leading stores within the Mitre 10 group was not lost to a competitor. Additionally, the evidence of Mr Burrows and emails from within Mitre 10 indicate that Mitre 10 was proceeding on the basis that it needed to provide a response to the 4 November 2009 email, which was understood to be the “time limit” provided for in the RFR Agreement. Nevertheless, there was no evidence that this was more than a subjective intention from Mitre 10’s perspective, nor that there had been any communication of this view or position to WHT. Consequently, I am of the view that Mitre 10’s subjective intention in this respect is irrelevant. The communications between the parties must be assessed objectively, adopting the approach of the High Court in, for example, Carter v Hyde.[50] In any event, if Mitre 10 had communicated to WHT that it thought that it should respond to the 4 November 2009 email within 28 days, there is no evidence of any reliance upon or consequent detriment to WHT which might have resulted in this communication having any significance; for example, in terms of an estoppel. Neither would it, in my view, affect the proper characterisation of the 1 December 2009 letter, for the reasons indicated.
[50](1923) 33 CLR 115.
As submitted by both WHT and Bunnings, there were clearly remedies available to Mitre 10 in the event of continuing failure by WHT to comply with its obligations under the RFR Agreement. Nonetheless, their position is, in my view, akin to an argument that WHT should be able to take advantage of its own wrong in the sense of a failure of its obligations under the RFR Agreement. This would allow WHT to avoid its obligations as a result of non-contractual performance, merely by virtue of the fact that it elicited a commercial response from Mitre 10 in the form of an invitation to treat: an invitation to negotiate and discuss the detail of the Bunnings offer with a view to Mitre 10 matching that offer if it proved to be reasonable and attractive to it.[51]
[51]See Lewison, The Interpretation of Contracts (4th ed) paragraph 7.10 and, particularly, the reference in the First Supplement to the Fourth Edition to Petroplus Marketing AG v Shell Trading International Ltd [2009] EWHC 1024 (Comm) (Andrew Smith J).
Additionally, the position put by WHT and Bunnings would result in a loss of Mitre 10’s rights under the RFR Agreement as a result of a communication in the form of the 4 November 2009 email which, quite apart from the provisions of the RFR Agreement, would not constitute an offer capable of acceptance as a matter of common law. This follows from the incorporation within the terms of the offer of the contents of unascertainable material, at least from the offeree’s perspective, being the Bunnings offer. The common law accepts that terms may be incorporated into a contract by reference in the document itself or by reference in the offer if they are not attached to or communicated within the offer, provided that they have been previously communicated.[52] Consequently, the failure of contractual performance on the part of WHT under the RFR Agreement was very significant and, in all the circumstances, it was impossible for Mitre 10 to have any idea of the extent to which that performance was deficient. It had no opportunity to compare the summary provided in the 4 November 2009 email with the BAA, which was not then available to it.
[52]Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101 at 76; and see Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (9th Australian Edition), paragraph 110.27, pp 426-7.
Election
Although, for the reasons indicated, I am of the opinion that no issue of election on Mitre 10’s part arises, the issue was emphasised in the submissions by WHT and Bunnings, and so it is appropriate that some further reference should be made to it.
WHT and Bunnings submitted that the case was concerned with the doctrine of election between inconsistent rights. They submitted that the best general statement of the doctrine of election between rights is contained in the judgment of Stephen J (with whom McTiernan J agreed) in Sargent v ASL Developments Ltd:[53]
“The doctrine of election as between two inconsistent legal rights is well established but certain of its features are not without their obscurities. The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence. As Williston[54] points out the doctrine is not out of harmony with the general rule that a binding surrender of a right requires a sealed release or consideration; by surrendering one right the elector thereby, gains an advantage not previously enjoyed, the ability to exercise to the full the other, inconsistent right.
In many instances what may pass for an application of the doctrine is in truth but the inevitable consequence of the party’s conduct, a consequence that would follow even if no such doctrine existed. Thus in the common case of avoidance of a contract for breach it is not any doctrine of election that prevents the avoiding party subsequently from enforcing the contract but rather the fact that the contract has, by his act of avoidance, ceased to exist; such a situation is revealed by the facts discussed by Lindley J in Evans v Wyatt.[55] On the other hand if he chooses instead to keep the contract on foot and sue for damages rather than rescind for breach of recourse must be had by the other party either to election or, if the facts will support it, to an estoppel if that breach should later be sought to be relied upon so as to avoid the contract. All this is made clear in the judgment of Jordan CJ in O’Connor v SP Bray Ltd.[56] In the present appeals the doctrine of election is directly in question since the issue is not whether following rescission the vendors may enforce the contracts but rather whether acts on their part consistent with the continued existence of the contracts prevent their subsequent purported rescission from being effective.
For the doctrine to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses: Craine v Colonial Mutual Fire Insurance Co Ltd;[57] United Australia Ltd v Barclays Bank Ltd.[58]
The nature of the knowledge which an elector must possess is a matter upon which the authorities are somewhat at variance. An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made; without that knowledge the doctrine of election will not be available to make irrevocable his choice of one particular right, although in appropriate circumstances an estoppel may still arise which produces that very consequence and this without any such requirement of knowledge no the part of the party who is estopped. The extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as ‘full knowledge of the material facts’.[59] In Elder’s Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd,[60] a knowledge of circumstances such as will provide information from which the decisive fact giving rise to the legal right is ‘a clear if not a necessary inference’ was held to be sufficient.[61]” (Emphasis added by the defendants)
[53](1974) 131 CLR 634 at 656.
[54](Contracts, 3rd ed., vol. 5, par. 683).
[55](1880) 43 LT 176.
[56](1936) 36 SR (NSW) 248 at pp 258-261.
[57](1920) 28 CLR 305 at p 326.
[58](1941) AC 1 at p 30.
[59]Bennett v L & W Whitehead Ltd (1926) 2 KB 380 at p 410.
[60](1941) 65 CLR 603 at 617.
[61](1974) 131 CLR 634 at 641-642.
Reference was also made to the principles as stated by the House of Lords in Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (“The Kanchenjunga”).[62] Reference is made to Lord Goff’s explanation of the principles of election, in the following terms:
“Election itself is a concept which may be relevant in more than one context. In the present case we are concerned with an election which may arise in the context of a binding contract, when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right, and he has to decide whether or not to do so. His decision, being a matter of choice for him, is called in law an election.
Characteristically, this state of affairs arises where the other party has repudiated … or committed a breach of the contract which entitles the innocent party to bring it to an end, or has made a tender of performance which does not conform to the terms of the contract. …
Characteristically, the effect of this new situation is that a party becomes entitled to determine or rescind … or to reject an uncontractual tender of performance;
In all cases, he has in the end to make his election, not in the sense of obligation, but if he does not do so, the time may come when the law takes the decision out of his hands, … sometimes by holding him to have elected to exercise it.”[63]
[62][1990] 1 Lloyd’s Rep 391.
[63][1990] 1 Lloyd’s Rep 391 at 398 (col. 1).
As is clear, however, from the passage from the judgment of Stephen J in Sargent v ASL Developments Ltd,[64] which was relied upon by WHT and Bunnings, a distinction is drawn between the doctrine of election and the inevitable consequence of a party’s conduct. This is a point specifically addressed in the speech of Lord Wilberforce in Johnson v Agnew:[65]
“Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity. It is easy to see that a party who has chosen to put an end to a contract by accepting the other party’s repudiation cannot afterwards seek specific performance. This is simply because the contract has gone – what is dead is dead. But it is no more difficult to agree that a party, who has chosen to seek specific performance, may quite well thereafter, if specific performance fails to be realised, say, ‘Very well, then, the contract should be regarded as terminated.’ It is quite consistent with a decision provisionally to keep alive, to say, ‘Well, this is no use – let us now end the contract’s life’. A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract – what he elects for is not eternal and unconditional affirmation, but a continuance of the contract under control of the court which control involves the power, in certain events, to terminate it. If he makes an election at all, he does so when he decides not to proceed under the order for specific performance, but to ask the court to terminate the contract: see the judgment of Sir Wilfrid Greene MR in Austins of East Ham Ltd v Macey [1941] Ch 338” quoted above [at 393-4].
[64](1974) 131 CLR 634 at 656; see above, paragraph 91.
[65][1980] AC 367 at 398.
In my opinion, even if the 1 December 2009 letter were to be regarded as a fresh offer, rather than an invitation to treat, “considerations of common sense and equity”, to adopt the words of Lord Wilberforce, would also lead a court to the conclusion that there had not been an inconsistent exercise of legal rights on the part of Mitre 10. There is nothing in the RFR Agreement which would prevent Mitre 10 making a bid or offer to purchase the business conducted by WHT at any time it chooses. In my view, this is particularly relevant in circumstances where the 4 November 2009 email, even as corrected as to the purchase price, ought not to be regarded as a tender of performance at all under the RFR Agreement; both having regard to the terms of that agreement and also that, standing alone, the 4 November 2009 email referring to terms and conditions in the Bunnings offer which were unascertainable by Mitre 10 could not be regarded as an offer capable of acceptance. It follows that this is not a situation where Mitre 10 had to make an election between inconsistent rights because WHT had not tendered performance under the RFR Agreement to Mitre 10. The 1 December 2009 letter is, in my view, at most an invitation to treat, with a request of WHT to comply with the requirements of the RFR Agreement so that Mitre 10 could consider whether to exercise its option to purchase the business. If no response to the request was forthcoming, Mitre 10 would necessarily need to consider whether to seek enforcement of the RFR Agreement – which it ultimately did by way of these proceedings. In the meantime, it indicated its interest in purchasing the business if and when the relevant provisions of the RFR Agreement were complied with. In these circumstances, the proposition that Mitre 10 should lose its rights under the RFR Agreement as a result of the sending of the 1 December 2009 letter does not accord with common sense and equity.
Readiness, willingness and ability of Mitre 10 to purchase from WHT
Both WHT and Bunnings submitted that Mitre 10 was not entitled to the relief sought on the basis that it had not established its readiness, willingness and ability to purchase the business in accordance with the RFR Agreement. The position with respect to an application for specific performance by the grantee of an option is helpfully summarised by Farrands, by reference to various authorities:[66]
“It is, however, well established that if the grantee upon exercise of the option does not tender the purchase price even though this could easily have been done, specific performance may not be granted, as may be so where the grantee, having been in possession of the property, neglects his or her duties to the grantor as lessor and commits waste on the property.[67] The grantee must be able to demonstrate that he or she is ready and willing to carry out his or her obligations to the grantor,[68] although more recently it has been stated that this may not be fatal in an action for specific performance.[69]”
[66]Farrands, The law of options and other pre-emptive rights, 49.
[67]Richardson v Kearton (1882) 8 VLR (E) 201.
[68]Measures Bros Ltd v Measures [1910] 1 Ch 336; 2 Ch 248; Australian Hardwoods Pty Ltd v Commissioner for Railways [1960] SR (NSW) 648; Nguyen v Taylor [1992] NSW ConvR 66-631.
[69]See the comments of Wilson and Toohey JJ in Bahr v Nicolay [No 2] (1987) 164 CLR 604; but compare Nguyen v Taylor [1992] NSW ConvR 55-631.
It is important, however, in the context of the submissions in the present case, to note that this statement of the law is a statement in relation to the exercise of an option by a grantee, not a discussion directed to the specific performance of an agreement granting something in the nature of a first right of refusal which does not, without the further operation of that agreement, produce an option to purchase or lease property. The distinction is clear from the provisions of clause 1 of the RFR Agreement, which are considered above.[70] In particular, as has been noted, the option to purchase the business provided for in paragraph 1.2(a) of the RFR Agreement only arises as machinery to enable the grantee of the right of first refusal to secure that right following performance by the grantor, WHT, of its obligations under the agreement to provide a true and complete copy of any written offer constituting an event under the chapeau to clause 1, or a complete statement in writing of all terms and conditions in the event that such an offer is not in writing.
[70]See paragraph 48.
Having regard to the nature of the RFR Agreement, specific performance of its terms on the part of WHT, the grantor, will not necessarily involve a sale of the property. Specific performance of the agreement from this perspective would only produce what the parties have contracted for, namely, an option to purchase which the beneficiary of the RFR Agreement, Mitre 10, may choose to exercise – or not – as it pleases. Consequently, its ability to finance the purchase of the property in the event that it exercises the option to purchase is not relevant, at least not directly. The same position applies, in my opinion, with respect to injunctive relief to prevent denial of Mitre 10’s rights under the RFR Agreement.
If, on the other hand, WHT had performed its obligations under the RFR Agreement and the option to purchase was exercisable and was in fact exercised by the beneficiary, Mitre 10, in accordance with paragraph 1.2(a), then an application for specific performance of the contract for sale and purchase of the property arising from the valid exercise of the option would raise the usual considerations as to readiness, willingness and ability to perform on the part of the purchaser, including its ability to finance the purchase. Similar considerations would apply with respect to the grant of injunctive relief to protect those rights.
It should not, however, be overlooked that the remedies of specific performance and injunction are discretionary and, like all equitable remedies, the discretion would not be exercised in favour of an applicant where the grant of such relief would be futile. This would be the position if the exercise of the option to purchase produced as a result of an order for specific performance of the other provisions of the RFR Agreement (or where the relief sought was protection by injunction) could never be exercised due to the grantee’s lack of finance or the likelihood of finance.
It was clear from the evidence that Mitre 10 has been undertaking a process of financial restructuring and that joint arrangements of some kind were contemplated with Metcash Trading Ltd. Mr Burrows was cross-examined at some length in relation to the financial position of Mitre 10, including whether any committed finance had been obtained for the purchase of the WHT business from Mitre 10’s banker, the Commonwealth Bank of Australia. Mr Burrows conceded that although there was no definite agreement from the Bank to finance this particular purchase, Mitre 10 had enjoyed a long and satisfactory commercial relationship with the Commonwealth Bank of Australia and had ongoing financial accommodation from the Bank which would enable it to purchase WHT’s business. In my opinion, it is also fair to say that one of the difficulties which appeared to have been encountered by Mitre 10 in finalising financial arrangements with the Bank was the lack of detailed knowledge of the nature of the Bunnings offer; the terms of the BAA, which it was invited to “match” by WHT.
Mr Burrows was also cross-examined in relation to Mitre 10’s policy that it would not, itself, own and operate businesses. There was evidence of attempts by Mitre 10, leading up to just prior to 1 December 2009, to find a joint venture party to purchase WHT’s business with Mitre 10 or one of its related companies. In any event, the evidence was that Mitre 10 was concerned not to let the business leave the Mitre 10 “group” and fall into the hands of a competitor. Consequently, it nominated a related company to purchase the business pending further decisions made as to the manner of its future operation. There was no basis in the evidence to indicate that, if this course were adopted, there would necessarily be any difficulty in the financing of the purchase of the business.
Conclusions
As I have found that the 1 December 2009 letter did not result in Mitre 10’s loss of rights under the RFR Agreement, it follows that the letter of 5 January 2010 from WHT’s solicitors to Mitre 10’s solicitors – which followed Mitre 10 being provided with a complete copy (and information as to Schedule 7) of the BAA – must stand as critical notice for the purposes of sub-clause 1.1 of that agreement.[71] Consequently, Mitre 10 was entitled to exercise its rights under the RFR Agreement, which it did by letter dated 20 January 2010.[72]
[71]See above, paragraph 20.
[72]See above, paragraph 21.
This was the position accepted by WHT’s counsel, who said:[73]
“We have sold the business and we just wish to know who is entitled to be the purchaser of the business. … To summarise what Mr Riordan said at Line 9 on p 3 he said this, ‘If it’, that is Mitre 10, ‘Extinguished its rights under the right of first refusal of the agreement by the letter of 1 December, the position is that Mr Kelly’s client Bunnings has now got an unconditional contract’, with respect to the Wallington store.
If it did not, then as we anticipated, there is no issue that our client’s contract [is] with Wallington to the purchase of the Bunnings store. So and then the ultimate issue, Your Honour, is identified there we say and we abide the decision of the court.”
[73]Transcript pp 218, 219 (Mr Northrop).
For these reasons I will give judgment for the plaintiffs and dismiss the counterclaim. I will hear the parties as to appropriate orders and, particularly, whether formal orders for specific performance of the contract for the sale of the business to Mitre 10 and injunctive relief restraining the sale of the business to Bunnings are now required. Additionally, I will hear the parties in relation to the question of costs.
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