Specific performance
97 Contracts involving the disposition of interests in land have always been considered proper subjects for specific performance: Dougan v Ley (1946) 71 CLR 142, 150; Meagher, Heydon and Leeming, Equity: Doctrines and Remedies, 4th ed, p 658. It is generally assumed that, prima facie at least, damages will be an inadequate remedy where a party refuses to make, or to accept, a conveyance of such an interest. In the present case, there is nothing in the facts which would lead to a contrary conclusion. If the position is such that, contractually, the Chippers (or, more specifically, Octra as their trustee) became entitled to a transfer of the freehold in the farm, there is nothing in the particular combination of facts in the present case which would make damages an adequate remedy.
98 The real issues on the matter of specific performance are, first, whether the Chippers did become entitled to call for a conveyance of the freehold in the farm; secondly, whether Red Valley's interest under its contract with Peter Smyth would be regarded by equity as superior to the interest of the Chippers in having the lease specifically performed; and thirdly, whether the Chippers were, and are, ready and willing to perform the obligations of purchaser under the contract by which they claim to be bound.
99 In considering the first question, I have found it useful to commence with the judgment of Tipping J in Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762 (to which Warren J referred in Bob Jane T-Marts Pty Ltd v The Baptist Union of Victoria [1999] VSC 346, [17]-[18]). As in many of the authorities to which I have been referred, Motor Works involved the question whether a caveat had been properly lodged by the holder of a first right of refusal and the question, therefore, of whether, and in what circumstances, such a holder had an interest in land. Tipping J considered that it was appropriate to address those questions in four stages ([1997] 1 NZLR at 765):
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 pursuant 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.
His Honour held that, on any view, no interest of land was created at the first stage. Equally clearly, when the fourth stage had been reached, the purchaser had an equitable interest. As to stage three, where an offer had been made but not yet accepted, his Honour held that the situation could not be materially distinguished from an option in the conventional sense, 'and this creates an interest in land'. In that respect, his Honour referred to Morland v Hales (1910) 30 NZLR 201 and to Bevin v Smith [1994] 3 NZLR 648. To those authorities I would add, in the Australian context, Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, 75-76.
100 Tipping J observed that difficulties arose at the second stage. His Honour said (at 765-766):
It is at stage two where the difficulties arise. At this sage 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 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.
The vendor may say that if he cannot sell to the third party he repents of his wish to sell at all and thus he cannot be required to submit an offer to the holder. On the other hand, there is greater force in the view that once the triggering event has occurred the holder is contractually entitled to an offer and the Court should order a reluctant vendor to make an offer. In this respect the exact terms of the right may be important.
In the present case the right is expressed as springing up "in the event the Landlord wishes to sell". There was here an overt manifestation of that wish. Without something over the point may well be academic. Following that over manifestation it was the duty of the landlord to offer the premises to the tenant first. Subject to questions of certainty, I consider the tenant was thereupon entitled to seek an order in the nature of specific performance requiring the landlord to make the appropriate offer. There may be difficulties about the terms on which the offer is to be made. The Court cannot act without sufficient certainty of terms. Thus, if there has been no overt manifestation of the terms which the vendor is prepared to accept elsewhere the matter can hardly proceed any further. The court cannot tell the vendor what the terms should be.
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 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.
In the light of the evidence in the present case, this state of affairs, ie stage two, may well have prevailed at an earlier stage. Earlier events are now, however, academic and there is no utility in my discussing them. I am faced with the fact that ultimately Westminster Auto did make an offer to Motor Works which offer was refused. Westminster Auto is now free to make the identical offer or an offer no more favourable to the offeree to anyone else it chooses.
I consider that Motor Works is now back to being the holder of a bare right of pre-emption. A further triggering event will be necessary before Motor Works could claim that stage two has been reached again. That triggering event would be a decision by Westminster Auto to make an offer to sell more favourable to the offeree than the offer made to Motor Works and declined by it. There is nothing at the moment to say that Westminster Auto will decide to do that; for example, by reducing the price. Thus for the purposes of the caveat I am of the view that while Motor Works may earlier have had an interest in land (a point requiring no final decision), it cannot be said that as things stand at the moment they do have any interest in land. There is nothing of which specific performance could presently be ordered. Thus their caveat, even if originally justified, cannot be justified in present circumstances.
In the facts of Motor Works itself, Tipping J was not required to consider the precise circumstances in which specific performance might be ordered, nor the terms of any such order, because his Honour held that the holder of the first right of refusal had been made an offer of the required kind and had refused it. What is significant about Motor Works in the present context is his Honour's suggestion that no question of specific performance could arise unless the vendor had manifested the essential terms upon which he was willing to sell, but that, once such manifestation had been made, the tenant was entitled to seek specific performance requiring the landlord to make the appropriate offer. In the present case, by 1 March 2006, Peter Smyth had manifested the precise terms of the contract upon which he was prepared to sell the farm and, if Tipping J's judgment correctly states the law, Octra was (and therefore the Chippers were) entitled to specific performance of Smyth's promise to make an offer on those terms.
101 I consider, however, that the jurisprudence in this area has advanced to the point where the holder of a first right of refusal which has fructified in the sense that the triggering event has occurred, and the terms upon which the vendor is prepared to sell are precisely defined, when faced with a vendor who refuses to make an offer, and upon demonstrating that he or she is otherwise ready and willing to perform his or her obligations in accordance with those terms, is entitled not merely to an order that the vendor make the appropriate offer, but to an order requiring the vendor to make the conveyance, on compliance with the terms. I do, of course, confine that generalisation to a first right of refusal expressed as appears in the lease in this case, namely, where the vendor promises that the holder shall have a first right of refusal for a price, and on conditions, which are sufficiently identified. As I read the authorities, the law now regards the holder of a first right of refusal in such a situation in the same way as it would regard the grantee of an option faced with a refusal by the vendor to convey the subject property.
102 The starting point in contemporary English law is the judgment of the Court of Appeal in Pritchard v Briggs [1980] Ch 338. The facts were rather unusual, in that the freeholders, Major and Mrs Lockwood, had executed two separate agreements with different people in relation to the same land. They sold some adjoining land to the predecessors in title of Mr and Mrs Briggs under an agreement which contained the following provision in relation to the land in question:
The vendors … do hereby … covenant … that so long as the purchaser shall live and the vendors or the survivor of them shall also be alive the vendors will not nor will either of them sell or concur in selling all or any part of the retained lands without giving to the purchaser the option of purchasing the retained lands and the fixtures and petrol pumps thereon at the price in the case of the retained lands of ₤3,000 and in the case of the fixtures and the petrol pumps of a valuation to be made in accordance with clause 3 of the conditions of sale known as the Law Society's Conditions of Sale (1934).
Many years later, the Lockwoods granted a tenancy of the land in question to Mr Pritchard under an agreement which contained the following provision:
The landlords … hereby covenant with the tenant … as follows: …That if the tenant shall … after the death of the survivor of the landlords desire to purchase [the retained lands] and shall before the expiration of three months of the death of the said survivor give notice in writing to the personal representatives of the said survivor … then the landlords hereby covenant so as to bind their respective estates that the personal representatives of the said survivor will upon expiration of such notice and upon payment of the sum of ₤3,000 … convey the said property … to the tenant in fee simple.
Although described as an option, the covenant with the Briggs' predecessors was in the nature of a first right of refusal in the sense that it lay dormant until the freeholders took steps to sell the land. On the other hand, the covenant with Pritchard was a true option, in that, for a period of three months after an event which had to happen at some stage, he could by his own act, and without any further assent of the personal representatives of the surviving Lockwood, bring a contract of sale into existence. Both covenants were registered under the Land Charges Act 1925 (UK).
103 Mrs Lockwood died before her husband. In October 1971, Major Lockwood had become infirm to the extent of being unable to manage his own affairs, and an order was made under the Mental Health Act 1959 (UK) with respect to his estate. There were certain proceedings in the Court of Protection, the details of which I need not relate; but the result was that, in August 1972, Lockwood's receiver entered into a contract for the sale of the land to the Briggs. However, the contract had not been completed when, in January 1973, Lockwood died. Within the 3 months specified in his agreement with the Lockwoods, Pritchard served a notice on Lockwood's personal representatives purporting to exercise his option. The question for the court was whether the Briggs, under their executed but uncompleted contract of sale, or Pritchard, under his option, were entitled to the land.
104 The Court of Appeal held, in effect, that, in order to defeat Pritchard's registered option, the Briggs had to establish that their right of pre-emption (ie their first right of refusal) constituted an interest in land with priority over Pritchard's option. Each member of the court held that it did not. A majority - Templeman and Stephenson LJJ - however, held that, had the event which triggered the Briggs' right to be offered the land occurred before the Lockwood's death, the Briggs would have had priority. Templeman LJ said ([1980] Ch at 419):
If the … [Briggs' covenant] had provided that Major and Mrs Lockwood would not sell in their lifetime or grant an option to purchase to purchase after their death without first offering the retained lands to [the Briggs] …, then the grant of Mr Pritchard's option in breach of the terms of the right of pre-emption would have converted the Briggs' right of pre-emption into an option and conferred on the Briggs an equitable interest in priority to the equitable interest conferred on Mr Pritchard by his option.
What is significant for present purposes about his Lordship's analysis is that an act in breach of the contractual term providing for a right of pre-emption triggered that right and that thereupon the holder of the right became the grantee of an option. His Lordship said ([1980] Ch at 418):
Thus the relationship of vendor and purchaser could not be established unless the Lockwoods chose to offer the retained lands to the holder of the right of pre-emption or, in breach of covenant, contracted to sell the retained lands to a third party without first offering the lands to the option holder ….
In a lengthy judgment, Goff LJ concluded that the holder of a right of pre-emption did not, on the occurrence of the triggering event, become the holder of an equitable interest in the land. Having read that judgment and also the judgment of Templeman LJ, Stephenson LJ said ([1980] Ch at 423):
… what is granted as a right of pre-emption … is only properly called an option when the will of the grantor turns it into an option by deciding to sell and thereby binding the grantor to offer it for sale to the grantee. That it thereby becomes an interest in land is a change in the nature of the right to which, unlike Goff LJ, I see no insuperable objection in logic or principle. And, as I understand his opinion on this point, its consequences would be that a right of pre-emption could never be enforceable against a successor in title whether it is registered or not.
I accordingly prefer the opinion of Templeman LJ on this point.
I am not so much concerned with the question whether the Chippers, as the holder of the first right of refusal, had an interest in land as such. I am concerned with the question whether the offer of the land for sale to Red Valley, and the execution of a (varied) contract in that behalf, effectively converted the Chippers' rights into an option. If I were to follow Pritchard v Briggs, I would hold that they did.
105 In Kling v Keston Properties Ltd (1985) 49 P & CR 212, the owner of the land had entered into a tenancy agreement which contained the following provision:
It is agreed that in the event of [the landowner] wishing to sell the garage on a long lease you will have the option to buy it first on the basis stated in the letter of agreement between you and our clients dated April 11, 1980, to the terms of which this agreement is subject, before possession is acquired to sell to another party.
Some time later, and without notice to the tenant under the agreement, the landowner let the land under a 99-year lease. The tenant sued on the provision set out above. Vinelott J set out lengthy passages from the judgments of Templeman and Stephenson LJJ in Pritchard v Briggs, and concluded (at 217):
Applying these principles to the instant case, it is, I think, clear that the right of pre-emption became an option and created an equitable interest in the garage not later than the moment when the agreement for the grant of a lease was executed. A vendor can hardly evince a desire to sell land more clearly than by contracting to sell it.
The tenant obtained specific performance.
106 In Tuck v Baker [1990] 2 EGLR 195, land was sold under a contract which, for the next 21 years, effectively gave the vendors a right of pre-emption to re-purchase the land, should the purchasers wish to sell. The relevant provision in the sale agreement was expressed as a negative covenant not to sell or dispose of the land unless the freehold had first been offered for sale to the vendors, and the vendors had either refused that offer, or had failed to accept it within two months. In the facts of the case, the purchasers did make such an offer, but they withdrew it before the expiration of the two-month period. The Court of Appeal held that the purchasers were entitled to act in this way. They did not in fact sell or dispose of the land to any other person, and were not, therefore, in breach of the term in the agreement. The judgment is a short one and, by reason of the negative covenant in the agreement and the absence of any agreement to sell to a third party, it does not bear upon the question with which I am presently concerned.
107 In Bircham & Co Nominees (No 2) Ltd v Worrell Holdings Ltd (2001) 82 P & CR 34, the land in question was held under a long lease which contained the following provision:
If at any time during the term hereby created the Lessee shall wish to dispose of the term … it shall first offer the same in writing to the Lessors stating the price at which it is prepared to sell the same and the encumbrances (if any) subject to which the said term shall be assigned. If the Lessors shall not within twenty-one days of the receipt of such notice accept the offer therein contained the Lessee may within six months thereafter … assign the said term to an approved assignee at a price equivalent to or greater than that at which it was offered to the Lessors, but shall not assign the same for any lesser sum than that at which it was last offered to the Lessors without again offering the same in writing to the Lessors at such lower figure.
The occasion arose when the lessee did desire to dispose of the remainder of the term. It offered the term to the lessors, and the latter purported to accept the offer by correspondence. For reasons which are not presently relevant, the court held that a binding contract did not come into existence. Within the 21 days referred to in the above provision, the lessee purported to withdraw its offer (as it happened, its whole share capital had been acquired by third parties who desired to purchase the remainder of the term in preference to the lessors). The lessors argued that they had an equitable interest in the term because of their rights arising under the provision of the lease set out above. This argument did not prevail. The Court of Appeal held that the provision in the lease did not prevent the lessee from withdrawing an offer made in compliance with it. The provision merely prevented the lessee from selling the term to another within the 21 days.
108 In Bircham, the question was not whether the lessors obtained an equitable interest in the term upon the lessee doing something which would have amounted to a breach of the provision by which the first right of refusal was granted. It was whether the lessee's offer of the term in accordance with the provision gave rise to such an interest in the lessors. Referring to the passage in the judgment of Templeman LJ which I have set out at par 104 above, Chadwick LJ, who delivered the main judgment, held that it did, but that it would lapse if the offer were validly withdrawn. His Lordship said (82 P & CR at [33]):
It is, I think, implicit in those observations that an equitable interest would arise as soon as the grantors chose to offer the land to the grantees; that is to say, an equitable interest analogous to - and (to my mind) indistinguishable from - an interest under an option would arise when the offer was made, whether or not the offer was accepted. But, of course, the interest would lapse if the offer were not accepted within the twenty one day period for which the offer was to remain open. (Emphasis in original.)
Chadwick LJ accepted that the observations on which he relied from the judgment of Templeman LJ were correct 'in the context in which they were made'. The context in Pritchard v Briggs, his Lordship pointed out, was one in which an offer made under the right of pre-emption could not be revoked or altered within 21 days. His Lordship said (at [35]):
Where an offer is made upon terms that it will remain open for acceptance for a specified time it has the characteristic which has led the courts … to hold that the offeree obtains an immediate equitable interest in land.
His Lordship then referred to MacKay v Wilson, and continued:
An offer made on terms that it will remain open for acceptance for a specified time is indistinguishable from an option - indeed, to my mind, an offer made on such terms is properly described as an option. But, where the offer is made on terms that it can be withdrawn at any time before acceptance, it does not have the characteristic essential to an option. Such an offer is indistinguishable from any other contractual offer. The offeror remains free, at any time before acceptance, to decide that he will not part with the land - see Tuck v Baker [1990] 2 EGLR 195.