Bob Jane T-Marts Pty Ltd v Baptist Union of Victoria [1999] VSC 346

5. The plaintiff is the occupier of premises known as and situate at 567-569 Doncaster Road, Doncaster ("the premises"). It conducts a retail tyre sale and repair business at those premises. The premises are occupied by the plaintiff under the terms of a lease executed on 25 October 1989. The initial term was for ten years with a right of renewal for two further terms of five years such renewal being automatic unless the lessee provided notice. For present purposes the key part of the lease is clause 9. Clause 9 of the lease provides as follows:

"The Lessor which term shall expressly include its transferees, purchasers or assignees covenant and agree that in the event of the Lessor deciding to sell the freehold property of the demised premises same shall first be offered to the Lessee at the price and on the terms that the Lessor is prepared to sell the same to a bona fide purchaser and the Lessee shall have not less then thirty days within which to accept or reject such offer provided that the Lessor may enter into a contract of sale which is conditional upon the Lessee not exercising its right to buy the said property and further provided that the right to buy the said property shall not apply if the Lessor decides to sell the property by public auction."

9. As a consequence of its form and requirements, the operation of clause 9 contemplates three steps. Firstly, the event that the first defendant decides to sell the premises; and, secondly, the event of the first defendant deciding upon a price and the terms upon which such sale will take place; then, thirdly, the first defendant first offering to sell the premises to the plaintiff on those terms and conditions.

12. Properly construed in accordance with established legal principles, the right conferred upon the plaintiff by clause 9 did not, without more, constitute an interest in land. It was no more than a right of first refusal or pre-emption. As such it did not provide a sufficient foundation for a caveat. See: Woodroffe v Box [1954] HCA 22; (1954) 92 CLR 245 at 254; Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch. 37; Pritchard v Briggs [1980] Ch 338; and, generally Colbran and Jackson, Caveats (1996) at para. 5.68.

15. The evidence on affidavits before the Court shows that the plaintiff first became aware of the fact that the premises had been sold by the first defendant to the second defendant in mid July 1999 but at that time the plaintiff was unaware of the terms of the sale. A copy of the contract under the terms of which the premises were in fact sold by the first defendant to the second defendant dated 4 June 1999 was first seen by the plaintiff on 27 July 1999 when the plaintiff's solicitors obtained a copy of the contract. The contract was settled on 22 June 1999 despite the fact that the contract provided for settlement on 30 June 1999.

18. It is apparent from the affidavits that before or prior to the execution and exchange of the contract dated 4 June 1999 three key events occurred. Firstly, the first defendant decided to sell the premises. Secondly, the first defendant decided upon a price and the terms on which it would sell the premises. Thirdly, the first defendant did not first offer to sell the premises to the plaintiff at that price and upon such terms.

21. Dr C.L. Pannam QC who appeared with Mr N. Wikrama for the plaintiff submitted that upon the happening of these events the plaintiff acquired an equitable interest in the premises as the holder of an option to purchase the premises pursuant to the provision of clause 9 of the lease.

24. Dr Pannam relied upon the fact that the plaintiff lodged a caveat over the title for the premises on the 16 July 1999 based upon the information which it had obtained in mid July. He submitted that the interest claimed by that caveat was an "estate in fee simple" based on an "Option to purchase the fee simple in lease commencing 25/10/1989 from Baptist Union of Victoria". Dr Pannam submitted further that it is clear that at all relevant times the plaintiff would have accepted an offer to sell the premises on the same terms and conditions of the contract of sale between the first and second defendants and was and is ready willing and able to do so. I conclude that so much is at least arguably apparent from the affidavits in support of the application.

27. The affidavits disclose that there is an instrument of transfer of the premises from the first defendant to the second defendant dated 22 June 1999 and which was lodged for registration in Dealing No. W174241E on 22 July 1999 but has not yet been registered. The third defendant to the proceeding is the Westpac Banking Corporation which holds a mortgage over the property which has been lodged for registration in Dealing No. W 174242B but has not yet been registered. I was informed that the plaintiff does not merely rely upon its caveat to prevent the registration of these dealings. Rather, it seeks an interlocutory injunction directed to the Registrar to prevent registration because to register would substantially prejudice the plaintiff's rights. It would be driven to prove actual fraud to overcome the effect of registration. It is said the only relevant effect of the caveat is to give notice of the lodgement of an inconsistent dealing thus enabling the caveator to take curial action to protect its rights. In any event, the second defendant has recently filed a summons returnable before me seeking removal of the caveat.

30. It was submitted by Dr Pannam that in the competition between the equities the plaintiff's equity, on any view, was first in point of time and accordingly prevails over the subsequent equitable interest in the premises obtained by the second defendant by virtue of the sale. See: Colbran and Jackson, op. Cit. para 11.6. For the purposes of the interlocutory application I accept this submission. Turning to the evidence, there is limited need to give much consideration to the affidavit material which has been filed. On proper analysis the plaintiff's case is a simple one and nothing has been put in opposition to show that the premises were offered to the plaintiff or that the plaintiff declined any such offer. Indeed so much seems to be agreed between the parties. The position of the vendor, the Baptist Union of Victoria, the first defendant is somewhat unusual. Mr G.H. Garde QC who appeared for the first defendant informed me that for a period of approximately ten years his client had relied upon the advice and management of a firm of agents and that at all times, upon making the decision to sell the premises, the first defendant believed that its agents had offered the premises to the plaintiff for sale. It appears that such offer was never made and that the first defendant as vendor has joined the agents as a third party. To date the third party has not participated in the proceeding notwithstanding the service of a third party notice. In any event, the first defendant did not oppose the application by the plaintiff for an interlocutory injunction. Similarly, I was informed that the attitude of the third defendant, the Westpac Banking Corporation as mortgagee was one of non-opposition.

33. Ultimately, the issue for consideration by me before determining whether or not to exercise the discretion to grant an interlocutory injunction is whether the plaintiff had more than a right of first refusal and arguably enjoyed an option to purchase and which interest constituted an interest in land. The ramifications of a party enjoying an interest by way of an option has been considered by the courts on a number of occasions. See: Beneficial Finance Corporation Ltd v Multiple Constructions Pty Ltd (1995) 36 NSWLR 510 at 526 at 531-6; Transfield Properties v Amos Aked Swift (1994) 36 NSWLR 321 at 341-3; Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762 at 765-6.

36. In Beneficial Finance Young J sitting in the Equity Division of the Supreme Court of New South Wales held that whilst a right of pre-emption or a right of first refusal does not per se constitute an interest in land, it may be, that, in certain circumstances, the grant of such a right together with contingencies that have happened, when combined, may constitute an interest in land. The learned judge observed (at 524):

"It must be remembered that any right under an option is a contingent right. There may be more than one contingency. Thus an option to acquire land may be given to the holder of an office on a certain day. The contingencies that must occur before a person may acquire an equitable fee simple pursuant to that option are at least: (a) that the person seeking to acquire the property be appointed to the office at the appropriate time; and (b) that the option be exercised."

40. In the course of the judgment Young J cited, with approval, the observations of Santow J of the Supreme Court of New South Wales in Transfield Properties wherein Santow J held (at 341):

"The more difficult and controversial question is whether, when the right of first refusal is, as it were, triggered by the relevant contingency, so as to then constitute an option to the grantee to exercise such right and thereby acquire the relevant property, subject to compliance with the terms of the right of first refusal, does from this point the grantee of the right of refusal have an equitable interest in the land?"

44. Young J in Beneficial Finance (at 526) cited with approval further observations of Santow J in Transfield at 343 where the latter observed:

" ... Before the triggering event it would be unreasonable to fetter the owner of the land by the grantee of the right of first refusal being able to lodge a caveat in anticipation of the triggering. That a particular right may change its character from a mere contractual right to an interest in property does not offend either common sense or experience."

48. The approach adopted in Beneficial Finance and Transfield is similar to the approach adopted by other members of the Supreme Court of New South Wales in Sterns Trading Pty Ltd v Shteinman (1988) NSW Conv R 55-414 at 57,791, per Kearney J; Walker Corporation Pty Ltd v W.R. Pateman Pty Ltd (1990) 20 NSWLR 624, per Brownie J.

51. More recently the issue has been considered by Santow J in the New South Wales Supreme Court in Jonns & Anor v Kim Seong Tan & Ors, unreported judgment dated 11 June 1999; (1999) NSWSC 648. In that matter the learned judge cited the New South Wales authorities already referred to including his own earlier judgment in Transfield and adopted an approach consistent with those authorities. The case is of particular relevance to the present matter as it was one in which the plaintiff sought an injunction restraining the defendants from exercising an option to purchase land in which the plaintiffs claimed they had a prior interest by way of an option and which in turn constituted a pre-emptive right. In the course of granting the injunction Santow J observed (at paras 13-14):

"It can be seen that the balance of opinion, at single judge level in NSW, favours the view that a triggered right of pre-emption confers an equitable interest in land, though no Court of Appeal judgment has finally settled the issue. But whether or not the right of pre-emption in the present case remains a mere equity or has become with its triggering an equitable interest, I am satisfied that, on a prima face basis, the outcome is that the plaintiffs have established sufficient of a prima face case to maintain their interlocutory relief."

55. The issue of whether a pre-emptive right constitutes an interest in land has visited the courts of New Zealand. In Motorworks Limited v Westminster Autoservices Limited, supra, Tipping J observed (at 765):

"When considering whether a right of first refusal creates an interest in land, it is convenient to analyse the general point in four stages. Stage one is where all that exists is a bare right of pre-emption. Stage two is reached when a triggering event occurs requiring an offer to be made to the person with the right of pre-emption. Stage three relates to the time after an offer has been made to the right of pre-emption and stage four, for completeness, relates to the stage, if reached, when a contract results from the acceptance of such offer. ... It is at stage two where the difficulties arise. At this stage an event has occurred which requires the vendor to make an offer to the person holding the right of pre-emption but no such offer has been made. The distinction between stage two and stage one is that at stage one no triggering event has occurred. That is why at that stage it is clear no interest in land can arise because the vendor may never wish to sell during the currency of the right. At stage two the vendor has decided to sell but, in breach of the right, has failed or refused to make the necessary offer to the holder of the right. It is at this point that the holder of the right will usually be most vulnerable. Clearly an injunction may be appropriate but a caveat may well be better because of its effect as notice to others interested in buying. When analysing the point at stage two, it should not matter whether the right of pre-emption is couched as a negative covenant or as a positive one, ie not to sell without first offering as opposed to offering before looking elsewhere. In substance the effect is the same. Once a triggering event has occurred, the holder of the right is entitled to receive an offer. The court can undoubtedly restrain the vendor from offering to a third party without first making an offer to the holder of the right. More difficult is the question whether the court can order the vendor to make an offer to the holder, a type of specific performance."

"Without prejudice to the question of an injunction, before any question of specific performance can arise, not only must the vendor have manifested a wish to sell but he must also have manifested the essential terms upon which he is willing to sell. Then, but only then can there be any question of specific performance. Unless the court can order specific performance I do not see how the holder can be regarded as having an interest in land. Thus, in short, at stage two the holder of the right of pre-emption will not have an interest in land unless and until the circumstances are such that specific performance can be ordered and the vendor thereby required to make an offer on sufficiently certain terms."

63. In light of the provisions of clause 9 of the lease in the present matter and the facts of the three "trigger" events having occurred, namely, the decision to sell the premises, the decision upon a price and terms of sale and the fact that the vendor did not first offer to sell the property to the plaintiff at that price and upon such terms I am satisfied that it is at the very least arguable that the plaintiff has an interest in land. I form this view on the basis of the New South Wales and New Zealand authorities. The plaintiff has fulfilled the onus it bears of demonstrating that it is arguable that the plaintiff acquired an equitable interest in the premises as the holder of an option to purchase in conformity with the requirements of clause 9 of the lease. In forming this view I am mindful of the judgment of the English Court of Appeal in Pritchard v Briggs & Ors (1980) 1 Ch. 338. In that matter the Court of Appeal held that the grant of a right of pre-emption conferred on the grantee no right to call for a conveyance of the land unless the grantor chose to fulfil the conditions on which the right could be exercised. It is not necessary for me to determine, at this point, the position at law in this State. It is sufficient that highly persuasive authority in both New South Wales and New Zealand provides a basis for the plaintiff to be able to satisfy me that it has at least an arguable case.

66. Mr R. Berglund appeared for the second defendant, the purchaser, Cramer Pty Ltd. Mr Berglund submitted that whether or not any rights arise under clause 9 of the lease and the nature of those rights depends upon an interpretation of the words used in the clause. He submitted that the determination of such rights is not dependent upon whether a pre-emptive clause gives rise to an interest in land. Mr Berglund relied upon observations of the Full Court of the Supreme Court of Western Australia in Pata Nominees Pty Ltd v Durnsford Pty Ltd (1988) WAR 365 at 372 where Burt CJ held that each case must be determined upon the terms of the bargain and ought not be determined by characterising rights as "option" "conditional contract" or "right of pre-emption". However, (at 372) Burt CJ adopted an approach, in effect, similar to that adopted by the New South Wales Supreme Court in the authorities cited previously by construing the actual terms of the bargain before the court observing:

"In this case, the right conferred was a right of refusal to purchase 'the said land at the price and upon the terms and conditions which the lessor shall stipulate as applicable to the sale'. So even if the lessor is desirous of selling so that the condition controlling the right is satisfied, there exists no offer which could, by acceptance, create a contract to buy and sell. It would be necessary first for the grantor to stipulate the price and the terms and the conditions."

70. In the matter before me precisely such an event has occurred, namely, that the vendor or grantor has stipulated the price and the terms and the conditions and then proceeded to sell the property without first making an offer to the plaintiff. I consider that there is no principle expressed in Pata Nominees that derogates from the approach adopted by the New South Wales and New Zealand authorities in support of my finding that the plaintiff has succeeded in making out at least an arguable case.

73. It follows that I find that there is a serious question to be tried relating to the right of the plaintiff to purchase the premises. So far as the balance of convenience is concerned I consider that it entirely falls in favour of the plaintiff in that the failure to grant the relief sought by the plaintiff would, save for the proof of fraud, result in the registration of a transfer and a mortgage thus destroying the right of the plaintiff to acquire the premises.

76. Accordingly, orders will be made for an interlocutory injunction as sought by the plaintiff.

I certify that this and the 8 preceding pages are a true copy of the reasons for judgment of Warren J of the Supreme Court of Victoria delivered on 15 September 1999.