Moraitis Fresh Packaging (NSW) Pty Ltd v Fresh Express

Moraitis Fresh Packaging (NSW) Pty Ltd v Fresh Express - [2008] NSWCA 327 - NSWCA 2008 case summary — Zoe

[5]

Blacktown Municipal Council v Doneo (1971) 1 NSWLR 157; Bruce v Edwards [2002] NZCA 294; (2003) 1 NZLR 515; Butts v O'Dwyer (1952) 87 CLR 267; Caboche v Ramsay (1993) 119 ALR 215; re Cockerill; Mackaness v Percival (1929) 2 Ch 131; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297; Davies v Littlejohn (1924) 34 CLR 174; Defevi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225; Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317; Elton v Cavill (1994) 34 NSWLR 289; Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2; Fitzgerald v Masters (1956) 95 CLR 420; Hall v Busst (1960) 104 CLR 206; Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896; Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602; John Nitsche Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334; Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57; Leahy, Earl v Moses (1975) 1 NSWLR 246; CASES CITED: Linden Gardens Trust v Lanesta (1994) 1 AC 85; Mackay v Wilson (1947) 47 SR 315; Maggbury Pty Ltd v Halele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181; Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631; The Nominal Defendant v Gabriel [2007] NSWCA 52; Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; Reuthlinger v MacDonald [1976] 1 NSWLR 88; re Rosher, Rosher v Roser (1884) 26 Ch D 801; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289; Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603; Saliba v Saliba (1976) Qd R 205; Secured Income Real Estate (Australia) Pty Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596; Toll (FGCT) Pty Ltd Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165; Vercorp Pty Ltd v Lin [2006] QSC 419; (2007) 2 Qd R 180; Wallace v Love (1922) 31 CLR 156; Watson v Phipps (1986) 60 ALJR 1; Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551; Woodroffe v Box (1954) 92 CLR 245.

[16]

(c) whether an offer to sell the Stands had been made by Fresh Express and accepted by Moraitis in accordance with the right of first refusal. 3 The trial judge answered (a) no and (b) yes. His Honour did not find that an offer to sell had been made in accordance with the right of first refusal, but held that any offer had not been accepted by Moraitis. He made a declaration giving effect to the answer to (b), but it followed from the holding that any offer had not been accepted that Moraitis' claim to specific performance of an agreement for sale to it of the Stands was dismissed. His Honour declined to restrain Fresh Express from dealing with the right to occupy the Stands without first offering it to Moraitis, considering that there was no longer a threat that Fresh Express would not act in accordance with the right of first refusal. 4 The issues were repeated, and further issues were raised, in the appeal and cross-appeal. Moraitis contended that there had been an offer to sell which it had accepted and that specific performance of the agreement thus made should be ordered; it said that if this were incorrect, Fresh Express should be restrained from dealing with the right to occupy the Stands without first offering it to Moraitis. Fresh Express contended that the price under the right of first refusal was not $85,971, and that in any event Moraitis could not rely on the right of first refusal because (i) it was void because its grant was a forbidden assignment of the right to occupy the Stands; (ii) it was void as a restraint on alienation; (iii) it was ineffective because the present right to occupy the Stands was not capable of assignment; and (iv) it did not catch Fresh Express' present right to occupy the Stands. 5 For these reasons which follow, in my opinion Moraitis can rely on the right of first refusal, and it should be held that there had been an offer to sell in accordance with the right of first refusal which Moriatis had accepted, for a price of $85,971. Fresh Express must transfer the right to occupy the Stands to Moraitis for that price.

[17]

The right to occupy the Stands as at 1996 6 Under a deed of settlement dated 3 September 1994 Fresh Express became the trustee of the Fresh Express Unit Trust ("the Trust'). The unit holders were Moraitis (then named Fresh Farm Produce Pty Ltd) and Cranvale Holdings Pty Ltd ("Cranvale") in equal shares, and those companies were equal shareholders in Fresh Express. They represented the interests of the Moraitis family and the Musumeci family respectively. 7 Fresh Express purchased for $360,000 the right to occupy Stand 52 at the Flemington Markets under a licence from the Sydney Market Authority, and carried on business as wholesaler of fruit and vegetable products specialising in so-called "soft produce" such as rockmelons, capsicums, eggplants, mangos and lychees. Fresh Express was funded by loans of $30,000 (or perhaps $30,300) from Moraitis and $30,000 from Cranvale, plus subsequent loan funds from Moraitis and from outside lenders. 8 In November 1995 Fresh Express and another Moraitis family company, Fresh Farm Wholesale Pty Ltd ("Wholesale"), purchased from John Tucker & Sons Pty Ltd ("Tucker") the right to occupy the Stands under a licence from the Sydney Market Authority, as between themselves in the proportions one-third to Fresh Express and two-thirds to Wholesale. The purchase price was $500,000. By way of exchange Wholesale immediately purchased the right to occupy Stand 52 from Fresh Express and sold to Fresh Express its two-thirds interest in the right to occupy the Stands. In the result, Fresh Express as trustee of the Trust held the whole of the right to occupy the Stands. 9 At this time the Flemington Markets was controlled by the Sydney Market Authority ("the Authority"), constituted under the Sydney Market Authority Act 1968 ("the 1968 Act"). By s 11(2)(e) of the 1968 Act the Authority was authorised to grant a right to use and occupy for the sale and disposal of farm produce and other merchandise any portion or portions of a public market, and to grant any such right by means of lease, licence or permit upon such terms and conditions as might be agreed. 10 The evidence did not show what lease, licence or permit was held by Fresh Express, or otherwise the terms and conditions on which it held the right to occupy the Stands. 11 However, by s 11(6) of the 1968 Act- "(6) A right of use and occupancy of a portion or portions of a public market, in whatever form granted, cannot be assigned or encumbered by the holder of that right except with the express permission of the Authority given in writing, and any purported assignment or encumbrance of such a right without that permission is void."

[22]

(d) That no beneficial interest in any share or unit or membership shall be issued or other action taken or attempted to be taken which would have the effect that the shareholders or the members of the Trustee, the Buyer or the trust would beneficially hold voting, income or participation rights in the said companies or the trust other than those which exist at this date or as contemplated by this Deed. The Buyer and the Trustee covenant and agree that they will not breach these representations or act so as to allow any breach of these representations to occur. The Buyer covenants and agrees it will not exercise any voting or participation right it has in the Trustee to resolve for it to act in any way which would bring about or allow a breach of these representations." 16 The first Deed was expressed to be conditional upon and interdependent with the other deed, and completion was conditional upon, inter alia, Moraitis being released from any liability in respect of any debt or obligation incurred by Fresh Express. To the same effect, by cl 6 Cranvale indemnified Moraitis for the future for "all costs, actions, demands or liabilities to the trustee or to any party and arising from the conduct of the trust." There was no provision in the first Deed for transfer of Moraitis' shares in Fresh Express to Cranvale, but completion was also conditional on Moraitis transferring its shares to Cranvale or its nominee for par value. 17 The other deed ("the second Deed") was also made between Fresh Express, Moraitis and Cranvale, referred to as the Trustee, the Seller and the Buyer respectively. It recited the Trust, that Moraitis was selling its units in the Trust to Cranvale, and that - "3. The Parties have agreed to resolve all financial matters of the trust on the terms and conditions as set out in this deed and further evidence certain arrangements which have been agreed and are as expressed in this deed." 18 Clause 1 of the second Deed provided that "unless the contrary intention appears" - "'the amount' shall mean the sum of EIGHTY FIVE THOUSAND NINE HUNDRED AND SEVENTY ONE DOLLARS ($85,971.00)

[28]

The present right to occupy the Stands 21 Pursuant to the Sydney Market Authority (Dissolution) Act 1997 ("the 1997 Act") the business undertaking of the Authority was sold to Sydney Markets Ltd ("Sydney Markets"). The Authority was dissolved. The Flemington site was not part of the sale, and became vested in the State and was leased by it to Sydney Markets. 22 By s 10(2) of the 1997 Act existing leases of any part of the Flemington site became sub-leases from Sydney Markets. By cl 2 of the savings and transitional provisions in Schedule 2 any licence or permit held from the Authority under s 11(2)(e) of the 1968 Act and in force at the sale date was "taken to be" a licence or permit held from Sydney Markets and continued to have effect in accordance with its terms and conditions. By cl 3 of that Schedule long-term licences and permits for use or occupation of any part of the Flemington site ceased to have effect ten years after the sale date or earlier by agreement. The evidence did not reveal whether Fresh Express' right to occupy the Stands was within the class of long-term licences or permits. Since there was a new occupancy agreement in 2002, see later in these reasons, there was no question of cessation in 2007. 23 The Articles of Association of Sydney Markets provided for the issue of shares each of which was, by Article 2.9, "irrevocably linked to the Tradable Space to which it relates". A Tradeable Space was a designated unit of space referable to an area at the Flemington or Haymarket Markets, and was said in Article 2.4(b)(ii) to be "stapled to each of the shares allocated to a class of shares … ". By Article 2.9 "neither the share nor the Tradeable Space can be dealt with in any way without the other". By Article 5.1 a member had "an unrestricted right to transfer a share provided that a share may only be transferred with the Tradeable Space to which it is stapled". 24 On 1 November 1997 there was issued to Fresh Express a share in Sydney Markets, in the evidence described as a share "in connection with" its occupancy of the Stands. It may be inferred that the Stands were a designated unit of space at the Flemington Market, but the then right of occupancy under Sydney Markets as head lessee was not more fully revealed; it appears to have been by the statutory continuation of whatever lease, licence or permit Fresh Express held from the Authority. 25 On 21 June 2002 Sydney Markets purchased the Flemington site from the State. Whether for this reason or otherwise, there was a change to the right of occupancy under Sydney Markets. 26 The evidence included a form of occupancy agreement ("the occupancy agreement"), designated in the printed form "effective 1 February 2003", according to Mr Adrian Spragg the Secretary of Sydney Markets being "the current applicable version of this document". The occupancy agreement provided in cl 4 for the grant by Sydney Markets of the right to use and occupy a stand or stall at a market, described in the document as "the Premises", and by cl 3.1 that the licence so granted entitled the grantee to hold a share in Sydney Markets. By cl 3.2, the Premises were "stapled pursuant to cl 2.9 of the Constitution to each Share held by You". Clause 2.1 of the occupancy agreement provided for the grantee's agreement that "any conditions of occupancy, standholders' guide or other agreement with SML in respect of your use and occupation of the Premises are revoked and replaced with this Occupancy Agreement as at the Effective Date". The licence under the occupancy agreement continued until terminated pursuant to cl 22, which in essence provided by termination by the grantee on 30 days notice and by Sydney Markets for cause. 27 There was no direct evidence that Fresh Express had entered into an occupancy agreement in this (or any other) form, but Mr Andrew Musumeci gave evidence that he believed it had occupied the Stands "in accordance with an occupancy agreement on the same terms as are set out in the pro forma agreement since about 2002". The proceedings were conducted on that basis that it had. 28 Clause 5 of the occupancy agreement included - " 5 Dealing with the Premises 5.1 No assignment You must not assign, sublet, licence, part with possession of or otherwise deal with your Licence or the Premises unless you have the written approval of SML. You may mortgage or charge your Licence with the approval in writing of SML. 5.2 Sale of your business If You wish to sell the business You conduct from the Premises, SML may, in its absolute discretion, accept a surrender of your Licence and grant to your purchaser a Licence for the Premises." 29 According to Mr Musumeci, it was Sydney Markets' practice to allow outgoing occupants of stands to surrender their occupancy and to grant a fresh occupancy to an incoming occupant, and "[i]t is normal practice for the intending outgoing occupier to charge an intending new occupier a fee in the event SML agrees to grant the intending new occupier such a fresh occupancy". However, the evidence included faxes between Moraitis' solicitor Mr Duncan Hall and Mr Spragg which included the questions and answers - "[Q]1 Neither Fresh Express nor Moraitis seem to be able to locate a copy of the licence (or other agreement) (the 'licence') under which the Stands are currently occupied. Are you able to send a copy of that licence to me?" "[A]1 All Wholesale tenancies are on a monthly licence which can be assigned from one party to another by transferring the Share (with attached equity entitlements). SML will vet the transfer before consenting, and the new incumbent confirms agreement to the licence conditions, which is the attached Occupancy Agreement dated 1.2.2003. Also attached is SML's constitution which will explain the structure." "[Q]2 What is involved in assigning the licence? In that regard, I understand that the licence is assigned rather than revoked and re-issued in the name of the new Standholder. I also understand that SML needs to consent to the assignment and a transfer fee is payable on that assignment." "[A]2 Yes, assignment rather revocation and reissue is the correct description, SML will only process the transfer when all outstanding monies (eg rent, electricity, comply notices) are paid, including a Consideration fee (2.5% of Assessed Value $520,000 for the one and a half module A 5-6, which is $13,000 plus GST) and any make good, any mortgage is discharged, and there is no other impediment for the transferor or transferee."

[29]

The events of late 2006 30 Mr Hall was told by an officer of Moraitis that "we have been told by someone at Flemington Markets that Fresh Express is negotiating to sell its stands to a buyer". On 29 November 2006 he wrote to Fresh Express expressing concern about proposals to sell the Stands and drawing attention to cl 3 of the second Deed, saying that if the Stands were to be sold Moraitis wished to purchase them pursuant to the right of first refusal. 31 Mr Hall sent a copy of the letter of 29 November 2006 by fax to the solicitor for Fresh Express, Mr Fred David. That afternoon he telephoned Mr David, asking whether he had received the fax. Mr David said that he had, and that Fresh Express was "negotiating to sell its stands with a possible buyer for a price of about $2 million". Mr Hall referred to the right of first refusal, noting that the consideration for re-purchase of the Stands in cl 3 of the second Deed was $85,971. Mr David said that that must be a mistake. Mr Hall said that Moraitis was "relying on the wording of the Clause". 32 On 6 December 2006 Mr Hall wrote to Mr David referring to their telephone conversation and stating that Moraitis " has indicated that it will exercise the right of first refusal to re-purchase the Stand for the amount (as defined in the Deed) in accordance with clause 3 of the Deed". 33 On 11 December 2006 Mr David wrote to Moraitis, with a copy to Mr Hall - " RE: FRESH EXPRESS AUSTRALIA PTY LIMITED OFFER TO SELL TO MORAITIS FRESH PACKING (NSW) PTY LIMITED STANDS 5 & 6 'A' SHED SYDNEY MARKETS We act on behalf of Fresh Express Australia Pty Limited. We are instructed by our client to offer to sell to your client, Moraitis Fresh Packaging (NSW) Pty Limited, the right to become the licensee from Sydney Market Authority of Stands 5 and 6 'A' Shed at Sydney Markets. You have from the date of this letter until 9 January 2007 to execute the agreement enclosed herein and provide a bank cheque in favour of our client for the sum of $1,800,000.00 plus a further sum of $180,000.00 for GST. If you are not in a position to accept our client's offer please notify us in writing as a matter of urgency." 34 The enclosed agreement was between Fresh Express as vendor and Moraitis as purchaser, and was in the terms - "A. The Vendor has been granted by Sydney Market Authority ('SMA') licence to occupy Stands 5 & 6 'A' Shed at Sydney Markets ('the Premises').

[40]

The right of first refusal - general 41 A right of first refusal such as that in cl 3 of the second Deed is well recognised. In Woodroffe v Box (1954) 92 CLR 245 at 257 Fullagar and Kitto JJ said - "The term 'first refusal' is not a technical term. It is a colloquial term, and indeed a somewhat inept term, because what the potential offeree wants is an opportunity of accepting an offer rather than an opportunity of refusing an offer. It may, and does, occur in various phrases, such as 'give the first refusal', 'have the first refusal', 'give the right of first refusal', 'have the right of first refusal', etc. And these phrases may be found in various contexts. It seems clear that a mere promise to give the first refusal should be taken prima facie as conferring no more than a pre-emptive right. If I promise to give you the first refusal of my property, I am making prima facie only a negative promise: I am saying: 'I will not sell my property unless and until I have offered it to you and you have refused it'." 42 By cl 3 Fresh Express granted to Moraitis "the right of first refusal to re-purchase the stand on the terms expressed in this clause". The reference to re-purchase was not apt, since Moraitis had not sold the right to occupy the Stands to Fresh Express either in November 1995 when Fresh Express acquired the right to occupy them in part from Tucker and in part from Wholesale, or as part of Cranvale buying Moraitis out in June 1996. The language may have been used to reflect that Moraitis had by transferring its units in the Trust and its shares in Fresh Express ceased to have an indirect interest in the Stands, but if so the usage was loose to the point of inaccuracy. 43 The grant of the right of first refusal was first expressed by the covenant and agreement that Fresh Express "shall not sell or assign or agree to sell or assign any interest in or right to occupy the stand without first having offered to transfer this right to the Seller". This was the substance of the negative promise to which Fullagar and Kitto JJ referred. The machinery of offer and opportunity for acceptance then set out fulfilled the pre-emptive right. 44 The trigger for the machinery was not in terms a particular proposed sale or assignment, but more generally that Fresh Express "wishes to assign its right to occupy the stand to any other party". Perhaps it was implicit that the other party was a particular party and that the wish, in the next sentence referred to as an intention, was to sell or assign to that party at a particular price. This need not be decided. 45 The steps then triggered were -

[45]

The price under the right of first refusal? 48 It is convenient first to consider whether, as the trial judge held, the price under the right of first refusal was $85,971. Apart from providing the price in any agreement made by acceptance of a deemed offer, the price was material to Fresh Express' contention that the right of first refusal was void as a restraint on alienation. 49 Fresh Express submitted that on the proper construction of the second Deed "the amount" in cl 3 was not $85,971, because that would be an absurd or obviously mistaken result. It did not clearly say what "the amount" meant if it was not the figure stated in the definition, but at trial its position was that it meant the price offered by a proposed purchaser and acceptable to it. At least in part it relied on the principles of construction to which I later refer when considering whether any offer was accepted, principles whereby words can be supplied, omitted or corrected when clearly necessary to avoid absurdity or inconsistency. 50 Fresh Express' submission made much of the origin of the figure of $85,971 stated in the definition of "the amount", in particular what it was not. I first go to that matter. 51 In cl 2 of the second Deed Fresh Express acknowledged that "the amount represents liabilities or entitlements due to the Seller from the Trust", and by that clause it agreed to pay the $85,971 to Moraitis. This statement of what "the amount" represented was borne out by other evidence. 52 The minutes of a directors meeting of Fresh Express approving the transfer of Moraitis' units in the Trust to Cranvale included that the Chairman - " … further advised that as a consequence of Cranvale Holdings Pty Ltd taking over 100% of the operation of Fresh Express, it was agreed that Fresh Express Farm Produce Pty Limited be paid an amount of $85,971.00, made up as follows: a) Loan Repayment $30,300.00 b) $84,553.00 Less: Share of current years losses 28,882.00 55,671.00 $85,971.00 " 53 The balance sheet of Fresh Express for the year ended 30 June 1996 included as a non-current liability a shareholders loan of $30,300 from Moraitis. That liability was also recorded in Fresh Express' accounts for April 1996. The profit and loss account recorded profits of $169,106.58 available for distribution and beneficiary current accounts totalling that figure, giving $84,553 distributable to Moraitis. The accounts for April 1996 recorded a loss for the year to date of $57,287.61, half of which is $28,643.81; this is close to the $28,882. 54 The evidence included a worksheet which Mr Musumeci said his accountant prepared as a calculation of "the value of the interest in the trust held by the Moraitis' family interests", comparing the accountant's calculation with a similar calculation received from the Moraitis interests. The Moraitis calculation was $171,190; the Musumeci calculation was $85,670. According to Mr Musumeci, it was decided to split the payment to Moraitis into two components, one being $85,971 representing the liabilities and other entitlements owing to Moraitis by Fresh Express and the other the consideration of $50,005 payable for Moraitis' units in the Trust. The total of these amounts is $135,976, which is not an average of the two calculations; the process was not further explained, and Mr Musumeci said that he left it to the respective accountants and was told by his accountant what the agreed figure was. However, it may be accepted that the $135,976 was arrived at as the value of Moraitis' interest in the Trust. 55 The Stands were an asset in the April 1996 accounts, recorded at cost at $527,705, which is consistent with the purchase from Tucker for $500,000. They must have come into the accountant's calculations at that figure. Fresh Express submitted that the $85,971, alone or as part of the $135,976, was not and was not meaningfully related to the value of the right to occupy the Stands. That submission should be accepted. 56 Fresh Express thus submitted that the function of the $85,971 in the second Deed was not as a future price for the right to occupy the Stands, and that it would be absurd if it were an agreed future price so far below a value at the time, as recognised in the accounts, in the order of $500,000. It said that the $85,961 was a figure as between Fresh Express and Moraitis in their capacities as trustee and lender/unit holder, and had nothing to do with the value of the right to occupy the Stands. So, it submitted, the use in cl 3 of the second Deed of the defined term "the amount" did not mean that the price in the right of first refusal was $85,971, because the definition applied "unless the contrary intention appears"; the discrete function of the $85,971, and the absurdity, provided a contrary intention. And, it submitted, the statement in cl 3 that "[t]he amount shall be the full consideration due and payable by the Seller to the Trustee to re-purchase the right to occupy the stand" was an indication that "the amount" was something other than the defined $85,971, because it was otherwise unnecessary to say what should be the full consideration. 57 There is considerable force in these submissions, but I do not think that they can prevail. 58 The second Deed should if possible be construed so as to give it a sensible commercial operation, with regard not only to the bare words but to the circumstances in which the parties entered into the transaction embodied in the two Deeds. There is currently some debate over plain meaning and ambiguity, and over possible divergence between the approach to surrounding circumstances in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 and in the discussion by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896: see Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) ALR 289 at [39]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; Spigelman, "From Text to Context: Contemporary Contractual Interpretation" (2007) 81 ALJ 322. Accepting for present purposes that ambiguity in the words used need not be found before regard can be had to the context in which the parties acted and their purpose in entering into the transaction, in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603at [109] this Court (Tobias JA, Mason P and Campbell JA relevantly agreeing) endorsed the trial judge's explanation (Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2) - "31 However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties. The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation.

[47]

33 However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit." 59 There can be correction of the words used, see later, but a contract can not be rewritten to force upon it a result which the words will not accommodate. 60 In Maggbury Pty Ltd v Halele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [11] Gleeson CJ and Gummow and Hayne JJ adopted from Lord Hoffmann's discussion that interpretation of a written contract involves "the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract". The words in the document are to be understood in the light of the background knowledge, but the words remain as the expression of the parties' intention, and it is their understanding that is informed. 61 The defined term "the amount" is used in cll 2, 3, and 6(b) of the second Deed. The uses are textually indistinguishable, and for each the figure of $85,971 is directly substitutable for the defined term. 62 Assuming that "the amount" meant the price offered by a proposed purchaser and acceptable to Fresh Express, it would equally be unnecessary to say what should be the full consideration - the consideration was found in that meaning of "the amount". In my view, the preferable explanation for the statement in cl 3 is that, "the amount" being the defined figure of $85,971, it was thought appropriate to make clear that that figure would be the full consideration because it was unlikely to be the actual value of the right to occupy the Stands in the event that there was a deemed offer accepted by Moraitis. 63 If "the amount" in cl 3 of the second Deed is not to mean, as in cl 2, the figure in the defined term, it is necessary to give it some other meaning. The bald words "the amount" are less than, and inappropriate to invoke, the price offered by a proposed purchaser and acceptable to Fresh Express. They give no indication of how, if not through the figure in the defined term, content is to be given to Moraitis' acceptance of the deemed offer and to the payment which is to be the consideration for re-purchasing the right to occupy the Stands. The clause does not require that the written notice of an intention to sell and assign state a price. This is entirely explicable if, as between Fresh Express and Moraitis, the price is to come not from what a third party has said it is willing to pay or from what Fresh Express says it is willing to sell for, but simply by the operation of cl 3 using the defined term. 64 In my opinion, notwithstanding the force in Fresh Express' submission the words of cl 3 do not permit an understanding, so that "the amount" bears other than the defined meaning. To do so would remake the parties' contract as expressed. 65 It is true that $85,971 was not in 1996 and would be unlikely at the time of a deemed offer to be the value of the right to occupy the Stands, and that in 1996 it was much less than that value. But it must not be forgotten that the right of first refusal was not granted as a freestanding entitlement, and simple comparison between price and value is not necessarily to be made. The right of first refusal was part of Cranvale buying out Moraitis. The terms on which and circumstances in which that occurred were not confined to payment by Cranvale of the value of Moraitis' interest in the Trust. Cranvale gave the so-called representations recorded in cl 5 of the first Deed, and the covenants that they would not be breached backed up by potential recovery of the $50,000. Cranvale may have seen a benefit from becoming sole unit-holder beyond the accountants' calculations - indeed, it must have, because of the contingency for payment of the $50,000 - and there may have been commercial and personal influences upon the overall terms on which Cranvale bought out Moraitis whereby Cranvale was prepared to promise much to Moraitis, explaining operation of cl 3 in accordance with its language. While Fresh Express and Cranvale had at the trial sought rectification of the second Deed in relation to the price, they had not succeeded and did not maintain that claim. It would be a mistake to focus solely upon a comparison between price and value in the right of first refusal.

[48]

Forbidden assignment of the right to occupy the Stands? 66 Fresh Express submitted that the grant of the right of first refusal was void because s 11(6) of the 1968 Act precluded encumbering the right to occupy the Stands without consent of the Authority. It said that the grant of the right of first refusal was an encumbrance, and that it had not been shown that the Authority had consented to it. 67 Moraitis submitted that this had not been raised at trial, and that Fresh Express should not be permitted to raise it on appeal. It said that satisfaction of necessary conditions precedent was implied in the pleading in the statement of claim (UCP Rules, Pt 14 r 11) and was not put in issue in the defence or through the cross-claim, and that in any event absence of the Authority's consent had to be pleaded lest it be taken by surprise (Pt 14 r 14); and that, had the Authority's consent been raised, it could have investigated the terms of the right to occupy the Stands as at 1996 and the question of consent and perhaps brought evidence that consent had been given. 68 There is force in a need to raise through the defence that the grant of the right of first refusal was void because the Authority had not consented to it. However, in my opinion Fresh Express' submission should in any event not be accepted. 69 Fresh Express submitted that there was an encumbrance because the right of first refusal created an obligation or responsibility with respect to the right to occupy the Stands. It referred to Wallace v Love (1922) 31 CLR 156; Davies v Littlejohn (1924) 34 CLR 174; and Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610. 70 The first of these cases was concerned with "freed from all encumbrances" in a will. Knox CJ and Starke J said at 164 that "encumbrances in its ordinary connotation, means that a person or estate is burdened with debts, obligations or responsibilities", and that in law it means especially "a burden on property, a claim, lien or liability attached to property". Their Honours held that the liability of the deceased estate for debts and the expenses of administration meant that it was not free from encumbrances. Higgins J at 172-3 preferred the "usual and technical meaning" of a liability attached to property, and did not think the debts and expenses were an encumbrance. In the second of the cases the question was whether instalments of purchase money under a conditional purchase were "charges or encumbrances" within those words in a will. It was held that they were not because under the relevant legislation the Crown did not have a vendor's lien (Knox CJ); because the liability to forfeiture in the event of non-payment was an inherent quality of and not distinct from the conditional purchase (Isaacs J); and because the conditional purchase title could be transferred without the consent of the Crown (Higgins J). Isaacs and Higgins JJ adopted the meaning of "a claim, lien or liability attached to property". The third of the cases was concerned with valuation of land, and spoke of encumbrances impairing the value of land. 71 These cases provide some assistance, but involved very different circumstances. The present question is whether the right of first refusal was an encumbrance within the meaning of "encumbered" and "encumbrance" in s 11(6) of the 1968 Act. 72 The grant of an option over land may confer an equitable interest in the land commensurate with the grantee's entitlement to equitable relief, the option being regarded as a conditional contract to sell the land: Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 76 per Gibbs J. A right of first refusal is distinct from an option. As was said in Mackay v Wilson (1947) 47 SR 315 at 325 per Street J - "But an agreement to give 'the first refusal' or 'a right of pre-emption' confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer. It is not an offer and in itself it imposes no obligation on the owner of the land to sell the same. He may do so or not as he wishes. But if he does decide to sell, then the holder of the right of first refusal has the right to receive the first offer, which he also may accept or not as he wishes. The right is merely contractual and no equitable interest in the land is created by the agreement." 73 See also Woodroffe v Box at 257 per Fullagar and Kitto JJ, above. 74 The right of first refusal in cl 3 of the second Deed was of this kind. Fresh Express undertook a negative obligation not to sell or assign the right to occupy the Stands without first offering to sell or assign to Moraitis. If Fresh Express wished to sell or assign to any other party, Moraitis had a contractual right to receive written notice of its intention to sell or assign whereupon a deemed offer was made. The contingency of an option thus arising did not give Moraitis an equitable interest in the right to occupy the Stands. 75 A mortgage or charge would no doubt be an encumbrance within s 11(6) of the 1968 Act, and the Authority would have an interest in controlling assigning, mortgaging or charging a right of use and occupancy since the assignee, mortgagee or chargee would so far as the law permitted have a proprietary interest in that right. But in the case of a right of first refusal the Authority could safely leave its control to such time as an offer was accepted, with any agreement thus arising being subject to obtaining its consent and the parties to it being obliged to take steps to obtain consent. The contractual obligations as between Fresh Express and Moraitis did not burden the right to occupy in the manner debts could be said to burden a deceased estate, and did not attach to the right to occupy. The right of first refusal operated contractually between Fresh Express and Moraitis. There is no reason to give the notion of an encumbrance a meaning, for the purposes of s 11(6), extending to the existence of the contractual obligations, and in my opinion the right of first refusal was not an encumbrance within the meaning of that provision.

[49]

Restraint on alienation? 76 Fresh Express submitted that the right of first refusal was void as a restraint on alienation, essentially because of the disincentive to sell or assign the right to occupy the Stands if that would trigger an entitlement in Moraitis to acquire the right to occupy for a price much less than its value. Its submission was on the basis that, on the proper construction of the second Deed, "the amount" in cl 3 was $85,971. It accepted that the submission was not open to it if "the amount" was the price offered by a proposed purchaser and acceptable to it. 77 That the right of first refusal was void as a restraint on alienation, had not been pleaded or otherwise raised at the trial, and Moraitis submitted that Fresh Express should not be permitted to raise the matter on appeal because, had it been pleaded, there could have been evidence directed to it. In my opinion, that submission should be accepted. 78 Contractual restraints on the alienation of property can be held to be void, see Hall v Busst (1960) 104 CLR 206; in the estate of Leahy, Earl v Moses (1975) 1 NSWLR 246; Reuthlinger v MacDonald (1976) 1 NSWLR 88 (a vigorous disagreement by Needham J, who nonetheless considered himself bound by Hall v Busst); Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635. Invalidity of a restraint on alienation may originally have been found in repugnancy to the grant or the indirect effect of Quia Emptores, but at least in the case of contractual restraints it is now based on public policy through "a principle of the law that private property should be fully alienable": Hall v Busst at 218 per Dixon CJ; see also at 223-4 per Fullagar J, 229 per Kitto J, 235-6 per Menzies J and 246 per Windeyer J. 79 However, many contractual restrictions on the alienability of property are not regarded as offending the principle of full alienability, and the basis of public policy brings into consideration another important public policy that a party which agrees to a contractual restriction should be held to its agreement unless there be good reason to the contrary. The law has other principles, of injustice or unconscionability and the like, whereby parties may be freed from bargains. Further, where the property is personalty rather than realty the public policy considerations in favour of invalidity of contractual restraints may have different significance, depending on the particular property, see Defevi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235-6; Caboche v Ramsay (1993) 119 ALR 215 per Gummow J at 232; Linden Gardens Trust v Lanesta (1994) 1 AC 85 at 106-7. In the lastmentioned case, involving assignment of a building contract without the contractor's consent, Lord Browne-Wilkinson said - "Nothing was urged in argument as showing that such a prohibition was contrary to the public interest beyond the fact that such prohibition renders the chose in action inalienable. Certainly in the context of rights over land the law does not favour restrictions on alienability. But even in relation to land law a prohibition against the assignment of a lease is valid. We were not referred to any English case in which the courts have had to consider restrictions on the alienation of tangible personal property, probably because there are few cases in which there would be any desire to restrict such alienation. In the case of real property there is a defined and limited supply of the commodity and it has been held contrary to public policy to restrict the free market. But no such reason can apply to contractual rights: there is no public need for a market in choses in action. A party to a building contract, as I have sought to explain, can have a genuine commercial interest in seeking to ensure that he is in contractual relations only with a person whom he has selected as the other party to the contract. In the circumstances, I can see no policy reason why a contractual prohibition on assignment of contractual rights should be held contrary to public policy." 80 Although the right to occupy the Stands may not in law be realty, it has characteristics taking it beyond treatment as tangible personal property. Nonetheless, relevant policy considerations may not apply as if it were land. 81 Whether a right of first refusal is void as a restraint on alienation has been considered in a number of cases since Hall v Busst, usually concerned with land rather than personalty. In Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551 Handley JA, with whom Clarke and Meagher JJA agreed, suggested at 555 that contracts binding the promisor not to alienate land to a third party in a manner inconsistent with the rights of the promisee "stand right outside any legal doctrine which invalidates contractual restraints on alienation". That may have reflected the general outcome of public policy considerations rather than an immutable statement of law, but with the exception of Saliba v Saliba (1976) Qd R 205 rights of first refusal have been upheld: Blacktown Municipal Council v Doneo (1971) 1 NSWLR 157; Reuthlinger v MacDonald; Wollondilly Shire Council v Picton Power Lines Pty Ltd; John Nitsche Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334; Vercorp Pty Ltd v Lin [2006] QSC 419; (2007) 2 Qd R 180. Consideration of the cases bears out Gummow J's observation in Caboche v Ramsay at 232, that in the case of contractual restraints "the question is one of degree" (citing Reuthlinger v MacDonald and noting that it was approved on appeal). The basis being public policy, in determining whether the principle that private property should be freely alienable is offended there must be regard to the particular circumstances, including the property's nature as a commodity, the market in which it may be bought and sold, and the interest served by the restraint both generally and as between the parties to the particular transaction. 82 As Fresh Express accepted, if the price in the right of first refusal were market value at the time of a deemed offer there would be no offence to the principle of free alienability. The right to occupy the Stands would be readily alienable to Moraitis or to another party. That the price at which a right of pre-emption may be exercised is necessarily an undervalue can result in invalidity as a restraint on alienation, see in re Rosher, Rosher v Rosher (1884) 26 Ch D 801; in re Cockerill; Mackaness v Percival (1929) 2 Ch 131; Hall v Busst especially at 224-5 per Fullagar J; Reuthlinger v MacDonald; Wollondilly Shire Council v Picton Power Lines Pty Ltd; Vercorp Pty Ltd v Lin. Hence Fresh Express' submission that, the price of $85,971 having no meaningful relationship with the value of the right to occupy the Stands and being in 1996 much less than its value of the order of $500,000, there was a practical imperative against selling or assigning the right to occupy the Stands, because it was required to make a deemed offer whereby Moraitis could if it so desired purchase the right for much less than its value. This, it was said, brought practical inalienability of indefinite duration, whereby cl 3 offended the principle of free alienability. 83 However, there has been no investigation of other circumstances of the grant of the right of first refusal material to its offence against the principle of free alienability. In Sweet, "Restraints on Alienation" (1917) 33 LQR 236 the learned author suggested that a restraint on alienation imposed "not for the purpose of making the property inalienable, but in order to effect an object which is in itself lawful" could be upheld. The basis of public policy allows that a restraint on alienation may be justified if it secures what has since been called a collateral benefit: see Reuthlinger v MacDonald at 101; Wollondilly Shire Council v Picton Power Lines Pty Ltd at 554; Elton v Cavill (1994) 34 NSWLR 289 at 300; John Nitsche Nominees Pty Ltd v Hahndorf Golf Club Inc at [121]. 84 None of this was investigated at the trial. There could have been evidence going to the circumstances in which the contractual restraint was undertaken, and Moraitis may have supported the validity of the contractual restraint undertaken by Fresh Express by evidence including of the purpose of the restraint as between the parties and the part it played in the buying-out. I do not think it would be "expedient and in the interests of justice" that the whole area of public policy left out of the trial should now be taken up; see Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645-6.

[50]

Is the present right to occupy the Stands incapable of assignment? 85 Fresh Express submitted that the present right to occupy the Stands was under the occupancy agreement together with the stapled shareholding; that by cl 5.1 of the occupancy agreement it could not be assigned or otherwise dealt with without the written approval of Sydney Markets; and that there was no evidence of Sydney Markets' approval. It submitted that the right to occupy the Stands was therefore incapable of assignment. 86 Moraitis again submitted that this had not been raised at trial and that Fresh Express should not be permitted to raise it on appeal. Again, in my opinion the submission should in any event not be accepted. 87 Fresh Express' submission was odd given the evidence that it was proposing to sell the Stands to a third party. It fails at the last step, which the submission did not explain. The right to occupy the Stands could be assigned subject to obtaining Sydney Markets' consent, and the parties to the assignment would be obliged to take steps to obtain consent: Butts v O'Dwyer (1952) 87 CLR 267. 88 As an alternative submission, perhaps not clearly articulated, I take Fresh Express also to have submitted that the right to occupy the Stands was not capable of assignment because cl 5.2 of the occupancy agreement provided not for assignment, but for surrender and a new licence; so it could not be assigned, but rather a new right to occupy the Stands would come about. (It will be recalled that Mr David's letter of 11 December 2006 offered to sell "the right to become the licensee from the Sydney Markets Authority" (no doubt an error for Sydney Markets), and that in the enclosed agreement the Vendor purported to grant the right to apply to the Authority for the grant of a fresh licence to occupy the Premises). 89 Clause 5.2 is concerned with surrender and a new licence if an occupier wishes to sell its business. Perhaps sale of a business conducted at Premises would usually accompany a new licence, but not necessarily, and cl 5.1 clearly recognised assignability of the right to occupy the Stands. It is apparent from the faxes between Mr Hall and Mr Spragg that the right to occupy Premises under an occupancy agreement is commonly assigned or transferred. I consider that the right to occupy the Stands could be assigned.

[51]

Does the right of first refusal catch the present right to occupy the Stands? 90 Fresh Express submitted that the present right of occupancy differed from the 1996 right of occupancy, such that the right of first refusal did not apply to it. Whatever the prior right of occupancy had been, it said, it had been superseded by the right of occupancy given under cl 2.1 of the occupancy agreement, and the present right of occupancy was under the different regime of an agreement with Sydney Markets together with a necessary shareholding in Sydney Markets to which the Premises were irrevocably linked (Article 2.9) and stapled (Article 2.4(b)(ii); cl 3.2). Since cl 3 of the second Deed said nothing about shares, its operation was confined to the 1996 right of occupancy and did not extend to the new and different right of occupancy coupled with a shareholding from 2003 onwards. Fresh Express suggested an analogy with Bruce v Edwards [2002] NZCA 294; (2003) 1 NZLR 515 and Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602. 91 Clause 3 of the second Deed usually referred to "the right to occupy the stand", but also to "any interest in … the stand", to "this right in the stand", to "all its right and interest in the stand", and particularly (in the second sentence) to the "right of first refusal to repurchase the stand". These were words of wide reach, not confined by attention to the basis for the right to occupy the stand and at least in part treating the stand, rather than the right, as the commercial object to be sold and assigned. 92 I do not think that the clause was restricted to the right to occupy the Stands under whatever may in 1996 have been the grant from the Authority. Fresh Express, Moraitis and Cranvale had in mind continuance of their rights and obligations, as is evident not only from the absence of temporal limitation in cl 3 but also from the intent in cl 5 of the first Deed that Fresh Express and the Trust would remain under the control of Cranvale and be the vehicle for its activities alone. Change in the arrangements by which Fresh Express was entitled to occupy the Stands could be anticipated, and it can not reasonably be thought that the parties intended that the right of first refusal in return for which Moraitis entered into the second Deed would be frustrated by change. That explains the references in cl 3 of the second Deed to Fresh Express "interest in the stand", and to a right of first refusal "to re-purchase the stand". 93 In my opinion, the new arrangements did not take the right of occupancy outside cl 3 of the second Deed. While cl 3 said nothing of shares in Sydney Markets, the shares are freely transferable together with the Tradeable Space (Article 5.1) and go with the right of occupancy. If it would not otherwise be implied, cl 4 of the second Deed provides for executing all documents necessary to give effect to it, and execution of a share transfer would fall within that clause. 94 Bruce v Edwards does not provide a useful analogy. There was a statutory right of first refusal so long as land remained Maori freehold land. The status of the land was changed to general land, and the right was lost. The change in status plainly took the land outside the statutory right. Nor does Jabetin Pty Ltd v Liquor Administration Board provide an analogy, turning on the legislation governing dealing with poker machine licences. 95 I return to assignability of the right to occupy the Stands. Even if surrender and the grant of a new licence were necessary, surrender and grant of a new licence is functionally an assignment and would in my opinion be sale or assignment within cl 3 of the second Deed.

[52]

Was there a deemed offer? 96 If there was a deemed offer, it was either accepted or not accepted and (subject to other issues) Fresh Express is either obliged to sell and assign the right to occupy the Stands to Moraitis or free to sell it to a third party. If there was not a deemed offer, Fresh Express remains obliged to give written notice in accordance with cl 3 of the second Deed if it wishes to sell and assign its right to occupy the Stands. It is an interesting forensic situation. In submitting that a deemed offer to sell had been made, Moraitis exposes itself to losing all if it be held that the offer was not accepted. In submitting that a deemed offer to sell had not been made, Fresh Express exposes itself to continuance of an obligation to give written notice in accordance with cl 3 of the second Deed. 97 Moraitis' primary submission was that Fresh Express had admitted on the pleadings the giving of written notice in accordance with cl 3 of the second Deed, giving rise to a deemed offer to sell. 98 Paragraph 9 of the statement of claim alleged that on or about 11 December 2006 Fresh Express gave to Moraitis "a letter ('the Letter') offering to sell to the Plaintiff the right to become the licensee from Sydney Markets Authority of stands 5 and 6 in 'A' Shed at the Sydney Markets", particularising Mr David's letter of 11 December 2006. Paragraph 10 alleged that on 19 December 2006 Fresh Express informed Moraitis that Fresh Express "considered the Letter to be an offer given pursuant to clause 3 of the Deed", particularising a telephone conversation between the solicitors. The telephone conversation appears to be that referred to in Moriatis' letter to Fresh Express of 4 January 2007; there was no direct evidence of it. 99 Paragraph 5 of the defence responded to para 10 of the statement of claim in the terms that "if clause 3 of the deed of 5 June 1996 were operative in its present form the letter of the defendant's solicitors of 11 December 2006 would on the proper interpretation of clause 3 of the deed amount to an offer". 100 There was particular reference to this admission in the course of the trial. 101 On the first day of the trial Fresh Express applied to amend the defence. The draft amended defence was not in the appeal papers, and it is difficult to relate it to the amended defence subsequently filed. The transcript records only that counsel for Fresh Express "referred his Honour to the amendments he sought in the amended defence", but it is evident that there was discussion of contentious proposed amendments and that the trial judge ruled that some of them could be made and others could not. 102 On the following day Fresh Express brought in an amended defence, which was in due course filed. The amendments included in para 3E, expressed to be in answer to the statement of claim generally - "(a) The letter from the defendant to the plaintiff dated 11 December 2006 does not and should not be deemed to constitute an unconditional offer to the plaintiff to sell its right, if any, to occupy stands 5 and 6 in Shed A at Flemington Markets for the sum of $85,971; … (d) If the said letter of 11 December 2006 does constitute a notice for the purpose of cl 3 of the said Deed of 5 June 1996, it was an offer to sell the right to occupy the said stands for the sum of $1,800,00 plus GST". 103 There was further discussion. The transcript includes - "WHITTLE: … So far as 3E is concerned we still - 3E(a) and (d) still get into the territory of the discussion we had yesterday concerning the admission as to the notice. Your Honour 3E(a) is a word, as far as I can see, a word for word repeat of the old 3B(d), if Your Honour has that draft of yesterday. HIS HONOUR: It is exactly the same. I said that could stand provided it was accepted that it was agreed it was an offer but not for the sum of 85 thousand. HIS HONOUR: Unconditional offer for the sum of 85,971, if that is read with paragraph 5. WHITTLE: I think the point really is made by 3E(d). HIS HONOUR: I think that is probably right. WHITTLE: 3E(a) is really unnecessary and it does suffer from the problem that it could be read another way if this case went further, and I would have thought 3E(d) does the job. HIS HONOUR: Mr Ellicott, when we had this yesterday 3E(d) was not there. I am sorry, it was there. It seems to me that there is something in what Mr Whittle says, that that's what you want to say as I understand it, that it does constitute a notice, it was an offer to sell for 1.8 million. WHITTLE: There is a point in the words an unconditional offer to the plaintiffs to sell for the sum of 85 thousand, if not the words, it was not an unconditional offer to the plaintiff to sell its right, if any, and to occupy the stands for the sum of 859 - it was an offer to occupy the sum of 1.8 million, that would get it. I think the negative is important. HIS HONOUR: It has been admitted it was an offer under clause 3. You say it doesn't mean it was an offer to sell for 85,971. ELLICOTT: That's right. Your Honour has given judgment and your Honour has indicated the limitation which we have to accept for the purpose of the pleadings. … ELLICOTT: I have argued that 5 is not an admission. Your Honour says it is, I have to accept that. HIS HONOUR: It must be; it says it is operative, it would be an offer, that is a statement of fact. The present form is unrectified form. ELLICOTT: I ask Your Honour to accept A [sic] with its limitations. Your Honour in effect has, in a sense, rejected it as being a challenge to it being an offer under 3, and has limited it. So far as Your Honour is concerned that is how it is, and your Honour will no doubt proceed on that basis. D [sic] is there and it is unexceptional, we submit, if, as Your Honour has indicated, Your Honour regards us as having made the admission contrary to our submission and limits A in the way you have it should remain in the form that Your Honour accepted it yesterday. D overlaps, that is not a big problem, pleadings overlap, Your Honour. HIS HONOUR: I allow paragraph 3E(a) to remain but on the understanding that it is accepted that this is not contrary to paragraph 5 of the defence in that its intention is only to say not that there was no offer but that there was no offer to sell for the sum of $85,971. On that basis I give leave to file the amended defence." 104 What appears from this, in my opinion, is that the trial judge had made his rulings on the basis that paragraph 5 of the defence admitted that the letter of 11 December 2006 was "an offer under clause 3", and maintained that ruling and regarded the new sub-paragraphs as saying only that the offer was not an offer to sell for $85,971. It should be noted that the trial judge specifically observed, in relation to para 5 of the defence, that "[t]he present form is unrectified form". 105 Underlying the new para 3E(a) and (d) was the dispute over the price in the right of first refusal, on Moraitis' case $85,971 and on Fresh Express' case the amount for which it was prepared to sell to a third party (being $1,800,000). By the trial judge's rulings, a deemed offer remained admitted, and the dispute was whether by force of cl 3 of the second Deed it had the content of an offer to sell and assign for $85,971 or whether Fresh Express was able as a matter of construction of cl 3 to give it the content of an offer to sell and assign for $1,800,000. 106 As I have said, the trial judge did not find whether an offer to sell had been made in accordance with the right of first refusal. Having held that there had not been acceptance in accordance with cl 3 of the second Deed, however, his Honour said in his judgment - "I should add that in any event, I do not consider paragraph 5 of the defence amounts to an absolute admission. Rather it is an admission of a clause 3 offer only if the construction contended for by Mr Ellicott is correct which I have found it is not." 107 The construction for which Mr Ellicott QC contended on behalf of Fresh Express was that the price under cl 3 of the second Deed was not $85,971 but the price in a proposed sale, being the $1,800,000 in the letter of 11 December 2006. His Honour's additional remark was but a passing observation about the admission in para 5 of the defence and, with respect, was inconsistent with what he had said in the course of the trial. 108 In my opinion, the admission of a deemed offer in cl 5 was not conditional upon the correctness of Mr Ellicott's construction. It was not conditioned upon how cl 3 operated, but upon whether it operated 'in its present form', which as the trial judge had said referred to the claim to rectification (which sought to add words which arguably would have affected whether the letter was written notice within the clause). The claim to rectification failed, and that condition was not fulfilled. The admission came to be qualified by para 3E(a) and (d) of the amended defence in the manner described above, but leaving the admission that on the proper interpretation of cl 3 of the second Deed the letter of 11 December 2006 amounted to an offer, albeit one which if Fresh Express' construction of cl 3 was accepted was an offer to sell for $1,800,000. That construction was incorrect; so the admission remained. 109 I note that para 17 of the cross-claim filed by Fresh Express (and Cranvale, irregularly), claiming rectification of the second Deed and declarations as to its construction and effect, alleged that the letter of 11 December 2006 "does not constitute a notice pursuant to cl 3 of the Impugned Deed". The cross-claim included a claim to a declaration that the letter "does not constitute a notice pursuant to cl 3 of the said deed of 5 June 1996". No reference was made to this in submissions in this Court. I take it to have been accepted at the trial that, as a result of the rulings concerning the admission in para 5 of the defence, the cross-claim in this respect fell away. 110 The admission in para 5 of the defence was an admission of mixed fact and law, or perhaps of law, involving satisfaction of cl 3 of the second Deed so far as it required "written notice … of an intention to sell and assign this right in the stand". Whether or not there can be an informal admission of a matter of mixed fact and law or a matter of law, there can be a formal admission. An admission need not replicate an allegation or be of all the allegation; it is enough that, on a fair reading, there is admitted an element of the pleaded case. By the UCP Rules Pt 14 r 9 a pleading may raise any point of law, and so a matter of mixed fact and law or of law may be alleged and may be admitted: Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 at [69] per Gummow J; The Nominal Defendant v Gabriel [2007] NSWCA 52 at [103] per Campbell JA. By Pt 14 r 12.6, such a formal admission may not be withdrawn except with the consent of the other party or by leave of the court. Absent consent or leave, since the pleadings define the issues for trial no evidence may be led and no submission made to controvert the admission: see The Nominal Defendant v Gabriel at [109]-[114] per Campbell JA. 111 Fresh Express did not apply further to amend its defence following the trial judge's ruling, or for leave to withdraw the admission made in para 5 of the defence. It remained as an admission which Fresh Express could not controvert, and remains an admission on which Moraitis is entitled to rely on appeal. Assuming that application for leave to withdraw the admission could have been made on appeal, it was not. 112 I accept Moraitis' primary submission. There is no occasion, therefore, to consider whether the letter of 11 December 2006 was indeed a written notice within cl 3 of the second Deed. It may be observed that, on the evidence, Fresh Express undoubtedly had the intention to sell and assign its right in the Stands. It was obliged to give written notice of that intention, and if it did not it was in breach of contract. However, Moraitis did not in the alternative claim damages for breach of contract.

[53]

Was any offer accepted? 113 The trial judge held that any offer was not accepted by Moraitis, because cl 3 of the second Deed required acceptance "by delivering a bank cheque drawn to the Buyer for the amount" but the bank cheque delivered by the letter of 4 January 2007 was not drawn to the Buyer, Cranvale, but to the Trustee, Fresh Express. Moraitis submitted that cl 3 should be so construed that "Buyer" when appearing should be read as a reference to Fresh Express. 114 In Fitzgerald v Masters (1956) 95 CLR 420 the contract provided for inclusion of conditions of sale "so far as they are inconsistent". Dixon CJ and Fullagar J said at 426-7 - "Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon. What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and cl. 8 must be read as if it said "consistent" or "not inconsistent" 115 So in Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596 words were added and a "not" was deleted in order to make sense of a contractual provision, see at 600-1 per Mason J with whom Gibbs, Stephen and Aickin JJ relevantly agreed. In Watson v Phipps (1986) 60 ALJR 1 Lord Brightman, speaking for the Privy Council, said at 3 that the function of a court of construction is to ascertain what the parties meant by the words they used, and - "For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further". 116 Like principles apply in the construction of a statute, see Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297. In Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521 this Court (Priestley and Fitzgerald JJA and Foster AJA) considered that the draftsperson of a lease made an obvious mistake producing an absurdity, and that construing the lease as if certain words were added "properly reflects the intention of the parties to be gathered objectively from the whole context of the lease" (at [37]). Their Honours accepted (at [19]-[21]), with reference to the abovementioned and other cases, that words leading to an absurd result could be construed so as to avoid the absurdity by supplying, omitting or correcting words, and that the cases were not limited to instances of ambiguity. 117 There is an overwhelming case for construing "Buyer" appearing in the last sentence in cl 3 as referring to Fresh Express. All obligations in cl 3 were obligations of the Trustee. It made no sense to provide that if the deemed offer was not accepted the Buyer should not be bound further by the clause, since the Buyer was not bound by the clause at all. Further, releasing the Buyer for the future would leave the Trustee bound for the future, so that the right of first refusal would not be a once-only opportunity to accept a deemed offer - if the Trustee did not sell or assign to another party it would remain obliged to give written notice of an intention to sell or assign creating another deemed offer open for acceptance. The reference to "Buyer" in the last sentence in cl 3 must have been a mistake, a slip in the draftsperson's attention. 118 That provides a basis for like mistake where "Buyer" appears in the sixth sentence in cl 3. There are strong reasons why the reference should have been to the Trustee. First, delivery of a bank cheque to the Buyer was unlikely to have been intended when the Trustee was the deemed offeror, since the Trustee would not by that step in accordance with cl 3 know whether or not the deemed offer had been accepted. Secondly, that was unlikely to have been intended because, despite the covenants not to breach the representations in cl 5 of the first Deed, Cranvale might not be the sole unitholder in the Trust. Thirdly, even if Cranvale were the sole unitholder in the Trust, bypassing Fresh Express as trustee of the Trust would not readily be taken to have been intended; Fresh Express as trustee would have creditors, and there should not effectively be immediate payment to Cranvale of the proceeds of sale of the right to occupy the Stands. Fourthly, the seventh sentence in cl 3 referred to "the amount" as the consideration "due and payable by the Seller to the Trustee", and provided that "the Trustee shall on receipt of the amount transfer and assign all its right and interest in the stand to the Seller", clearly on the basis that the Trustee was the recipient of "the amount" in consequence of the delivery of the bank cheque. 119 In my opinion, these considerations are so strong that cl 3 of the second Deed should be construed in the manner for which Moraitis contended. If there was a deemed offer, it was accepted in accordance with cl 3.

[57]

$85,971.00 130 There is further material in evidence relevant to the way this figure was arrived at. 131 A monthly report of the Trustee bearing the date April 1996 (Blue 254) showed current assets (including trade debtors and stock) at $425,989.27, current liabilities at $588,137.27, non-current assets (including the Stands at cost $527,705) at $561,521.86, and non-current liabilities at $288,635 (including a bank loan of $228,335, a loan from the Seller of $30,300 and a loan from the Buyer of $30,000). 132 An affidavit dated 22 January 2007 by Mr Musemici (the principal of the Buyer) in pars 12 and 13 identifies a further document drawn up by his accountant (Blue 494) showing calculations for the value of the Seller's interest on behalf of the Seller ($171,190) and on behalf of the Buyer ($85,670). Those calculations show a deficiency of current assets as against current liabilities of $162,147 (as in the April 1996 report) and show non-current assets at $561,522 (as in the April 1996 report). The Buyer's calculation shows non-current liabilities at $288,635 (as in the April 1996 report), while the Seller's calculation shows them as $60,300 less, presumably by excluding the loans from the Seller and the Buyer. 133 It is plain from these documents that $85,971 was calculated as the amount to be paid by the Trustee (and thus in effect by the Buyer, which was to become the sole beneficiary of the Trust) to the Seller, on the basis of a value of the Stands accepted by the parties as being $527,705 or thereabouts, and on the basis that the Trustee and thus the Buyer were to assume liability for the excess of current liabilities over current assets of the order of $160,000, and for the debt to the bank of the order of $230,000 (thereby giving the Seller benefits of the order of $80,000 and $115,000 over and above the payment of $85,971). It is true that there was no payment or allowance in respect of goodwill of the business, but the evidence was that the business was struggling at this time, as to some extent confirmed by the excess of current liabilities over current assets. 134 If the Trustee and/or the Buyer later wished to dispose of the Stands, they could theoretically do so either by the Buyer disposing of units in the Trust, or by the Trustee disposing of the Stands. The first Deed had a covenant against the former possibility, and provided for payment of $50,000 by the Buyer to the Seller in the event of breach of this covenant. The latter possibility was dealt with by the right of first refusal in the second Deed, which is the subject of this appeal. 135 Thus the question is whether the second Deed manifests the intention that, if the right of first refusal is engaged, the price at which the Seller is entitled to buy the Stands from the Trustee is the amount of $85,971. It was submitted by Mr Whittle SC for the Seller that this is what the language of the Deed requires, and also that, since the Seller had effectively given the business to the Buyer, it was reasonable that the Seller have the possibility of a windfall. 136 In my opinion, the latter submission has little force. The Seller not only got $85,971, but also exoneration from obligations of the order of $195,000; and the transaction assumed the Stands were worth over $500,000 in 1996. Goodwill was then of doubtful value. In my opinion, there would be no commercial sense in giving the Seller an entitlement to buy the Stands, which would be likely to increase in value from their 1996 value of over $500,000 (and there is no dispute that they are now worth about $1.8 million), for this very precise figure, which had no relationship to the value of the Stands as at the time of the Deed or any other time. 137 In my opinion, the question of how much weight should be given to the literal words of the second Deed is informed by the accuracy of the draughtsmanship of the Deed. The use of the word "re-purchase" in cl 3 is inappropriate, because the Seller was not selling the Stands. Although the right of first refusal is granted by the Trustee, cl 3 says that the bank cheque, delivery of which was to amount to acceptance of the deemed offer, is to be "drawn to the Buyer"; and also says that if the Seller does not accept the offer "the Buyer shall not be bound further by this clause". I will later consider the correct construction of those provisions; but they do suggest that the second Deed is not accurately drafted. 138 The second Deed provided that "the amount" means $85,971 "unless the contrary intention appears". In my opinion, as regards use of the wording "the amount" in cl 3 of the second Deed, the contrary intention does appear, having regard to the following considerations: (1) A "right of first refusal" usually means a right to purchase on terms on which the seller would otherwise sell to another buyer. (2) Accordingly, a right to purchase at a price that bears no relation either to the value of the property in question or to the price at which the vendor would otherwise sell to another buyer, is not accurately called "a right of first refusal". (3) If it were intended that the price at which the Seller could buy the Stands was to be $85,971, the only intended effect of the clause which could rationally be discerned would have to be to ensure that the Trustee would never sell the Stands to anyone. (4) Clause 3 contained its own definition of "the amount", namely "the full consideration due and payable by the Seller to the Trustee to re-purchase the right to occupy the stands"; and that in turn must mean the price at which the Trustee would otherwise sell to another buyer, which should be set out in the written notice of the Trustee's intention to sell and assign. (5) Any other view would make no commercial sense. 139 Accordingly, in my opinion, "the amount" in cl 3 means the price at which the Trustee would otherwise be selling the Stands to another purchaser.

[58]

Restraint on alienation 140 This issue does not arise on my interpretation of "the amount" in cl 3 of the second Deed: a right of first refusal at the price at which the vendor would otherwise sell to another buyer would not be a restraint on alienation. 141 If I am wrong in my interpretation of the meaning of "the amount" in cl 3, then two questions arise: (1) Can the point about restraint on alienation be taken for the first time on appeal? (2) If so, is the point good? 142 Giles JA determines (1) adversely to the Trustee, on the basis that there was no investigation below of the public policy considerations which might have supported the validity of the contractual restraint. I am of the contrary view. The whole of the commercial background to the transaction was relevant to a claim for rectification made below and not pursued on appeal, and also to the construction of the Deed as discussed above. Mr Whittle did not indicate any area of investigation that would have been relevant to the question of restraint on alienation that was not relevant to the questions of rectification and construction. In my opinion, there is no reasonable possibility that any different approach to the evidence would have been taken. I note in passing that in the leading case of Hall v Busst (1960) 104 CLR 206, the point about restraint on alienation had not been argued at first instance or before the Full Court of the Supreme Court of Queensland, yet was permitted to be taken on appeal to the High Court: see Hall v Busst at 223. 143 As regards question (2), the leading authority is Hall v Busst. There is also a very valuable discussion of the relevant law by Needham J in Reuthlinger v MacDonald [1976] 1 NSWLR 88, a discussion that received the imprimatur of the Court of Appeal in dismissing the ensuing appeal (unreported, 20 October 1976). Needham J (at 97) accepted that the doctrine of restraint on alienation applies to personalty, referring to Holmes v Godson (1856) 8 De G M and G 152 at 160, 44 ER 347 at 350-351. I take it that this would be so only in relation to personalty of special value, such as would be subject to specific relief on equitable principles. Needham J also considered that Hall v Busst established that the doctrine applied to contractual restraints unrelated to grants or transfers of property; and I accept that this is the correct view. 144 However, it is clear that, to be void, a restraint on alienation must be of sufficient degree and duration, and/or without a purpose which the law accepts as proper. In Reuthlinger, a restraint which operated only for the joint lives of the parties and was imposed for the protection of a valid collateral object, was held not to be invalid. 145 Similarly, in Wollondilly Shire Council v Picton Power Lines Pty Limited (1994) 33 NSWLR 551, there was a special condition in a contract for the sale of land to the purchaser imposing an obligation on the purchaser to re-sell the land to the vendor council at the same price if the purchaser failed to erect industrial premises within a certain time. The Court of Appeal held that condition to be valid. At 554-555, Handley JA (with whom Clarke JA and Meagher JA agreed), said this: The clauses in the present contract stand in marked contrast to those in Hall v Busst . The relevant restraint imposed by subcl (a) only continued until the company had built industrial buildings on the land which subcl (b) contemplated would occur within two years of the sale. Once that condition was fulfilled the restraint came to an end. Subclause (a) to this extent was neither independent nor unlimited in duration. Moreover the contract for resale came into existence because the respondent failed to perform its promise to build which was one of the terms on which it obtained the land from the Council. The contract did not come into existence because the respondent wished to alienate the land.

[64]

On 19 December 2006 the Defendant informed the Plaintiff that the Defendant considered the Letter to be an offer given pursuant to clause 3 of the Deed. Particulars Telephone conversation between the Plaintiff's and the Defendant's respective solicitors on 19 December 2006 at approximately 5:10 p.m. 150 Paragraph 5 of the Trustee's defence (and amended defence) was as follows: 5. As to paragraph 10 of the statement of claim the defendant says that if clause 3 of the deed of 5 June 1996 were operative in its present form the letter of the defendant's solicitors of 11 December 2006 would on the proper interpretation of clause 3 of the deed amount to an offer. 151 There was no reply, so except to the extent that the defence contained admissions, the Seller must be taken to have denied the allegations in the defence: see UCPR 14.27. 152 Paragraph 10 of the Seller's statement of claim did not allege that the letter of 11 December 2006 was an offer, but only that the Trustee informed the Seller that the Trustee considered the letter to be an offer. Paragraph 5 of the Trustee's defence did not admit this, but rather alleged that, on a certain condition, the letter would on the proper construction of clause 3 amount to an offer. Because there was no reply, that allegation by the Trustee was denied by the Seller. Accordingly, it was not a formal admission, but a contested allegation, and could at most amount to an informal admission: see Singleton v John Fairfax & Sons Ltd [1982] 2 NSWLR 38 at 48-51. 153 Accordingly, in my opinion, the pleadings cannot on any basis be considered as establishing that the letter was a deemed offer within cl 3; so that it is necessary to address question (2). 154 In order that the letter be a deemed offer, it had to be "written notice to the Seller of [the Trustee's] intention to sell and assign the right in the stands". 155 On the construction of cl 3 which I prefer, what is required is notice that the Trustee intends to sell to a third party at a specified price; because otherwise there would be no basis on which the seller would know the amount of the cheque which the seller has to provide in order to accept the offer. The letter of 11 December 2006 does not do this. 156 On the other construction of cl 3, there would be no need to specify a price in order that the Seller know the amount of the cheque: it would necessarily be $85,971. However, the document still must be notice of the Trustee's intention to sell and assign; and in my opinion, a letter that expresses no more than an offer by the Trustee to sell to the Seller is not a notice of the Trustee's intention to sell and assign. 157 Accordingly, in my opinion, on either view the letter is not a deemed offer.

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Cases Cited (42)