Woodroffe v Box

[1954] HCA 22

High Court of Australia|1954-07-01|Before: Kitto JJ, Webb J, Street J, Farwell J

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At a glance

Source facts

Court

High Court of Australia

Decision date

1954-07-01

Before

Kitto JJ, Webb J, Street J, Farwell J

Source

Original judgment source is linked above.

Judgment (34 paragraphs)

[1]

High Court of Australia Webb, Fullagar and Kitto JJ. Woodroffe v Box [1954] HCA 22

[2]

ORDER Appeal allowed with costs; order of the Supreme Court of Tasmania discharged except insofar as it certifies for the attendance of counsel. In lieu thereof question (1) answered Yes and question (2) not answered: plaintiff's costs of the originating summons to be paid by the defendants.

[3]

This is an appeal from an order of the Supreme Court of Tasmania (Morris C.J.) made on a summons for the determination under O. 61 of the Rules of the Supreme Court of Tasmania of questions arising under an agreement in writing dated 15th November 1946 made between the late James Murdoch MacLennan who then resided at Auburn in Victoria and the appellant Frank Woodroffe who then resided and still resides in Launceston, Tasmania. MacLennan was the owner of premises used as a drapery store situated at the corner of Brisbane Street and the Quadrant in Launceston and had leased them to the appellant in July 1943. The agreement in question recited that, in consideration of £100 paid by the appellant to MacLennan, the latter agreed among other things that his executors would "upon the death of the survivor" of MacLennan and his wife give to the appellant "the right of first refusal" to purchase the leased premises for £13,000; or should there then be in existence any statutory limitation of the price at which real estate might be bought or sold, then for £13,000 or the maximum price allowable by such statutory limitation, whichever was the lower. It was further agreed that in the event of purchase pursuant to this right of first refusal the sale should be for cash and the £100 should be credited on account of purchase money; but should there be no purchase the £100 should become the absolute property of "the owner". "Owner" was not defined by the agreement to include the executors or administrators of MacLennan; but no point was made of this in argument.

[7]

Mr. Menzies of counsel for the appellant referred to National Security (Economic Organization) Regulations, regs. 6 (1) (b) and 10A as providing a possible explanation why what he submitted was tantamount to an option to purchase should be cloaked as a right of pre-emption. But for reasons hereinafter appearing I think this transaction was beyond the scope of those regulations. No doubt it would be immaterial that the right was designated by the agreement as "a right of first refusal" if by the terms of the agreement it was made in substance an option of purchase. But before it can be held to be something other than what it is expressed to be, the terms of the agreement must be such as to leave open no other reasonable conclusion. As pointed out by Street J. in Mackay v. Wilson [1] the words of the agreement should be given their ordinary meaning, unless the context or the subject matter compels another meaning to be adopted. Nothing in the subject matter of this agreement compels another meaning to be adopted. Nor do I see anything in the context which has that effect. It is true that ordinarily a right of first refusal connotes an offer at a price which some third person is willing to give, as stated by Farwell J. in Manchester Ship Canal Co. Ltd. v. Manchester Racecourse Co. [2] ; whereas the price in this case does not depend on the initiative of a third person in making an offer to buy at a stated price. But Mr. Menzies relies also on the provision of what he submits is a fixed point of time for the realization of the right, i.e. "upon the death of the survivor", as well as on the fixed or maximum price, and on the consideration of £100 paid for the right. However the expression "upon the death of the survivor" does not necessarily fix a point of time, as distinct from a period of time: "upon" may mean either "immediately after" or "thereafter", depending on the subject matter or the context pointing definitely to one meaning or the other. There is in my opinion no such subject matter or context here. The word "upon" is equivocal apart from subject matter or context and it requires something more than an equivocal term to convert what ordinarily is a right of pre-emption into what would be in effect an option of purchase. Again the price of £13,000, or the statutory maximum if less, is quite consistent with the view that the parties intended that if the executors should decide to sell that would be the price to Woodroffe. It would, I think, be to take an extreme view to hold that this provision for a fixed or maximum price implied that there was an obligation on the executors to make an offer for sale when they would not otherwise have sold. That would involve, I think, the disregard of the word "first" in the expression "first refusal" which points to the possibility of there being more than one person in the contemplation of the executors as a possible buyer, and that in turn imports a decision of the executors to sell, quite apart from any obligation contracted to a particular individual. Lastly, as to the consideration of £100 it may well be that it would not be too much to pay for this right of first refusal in the ordinary acceptation of that term, having regard to the prospect of the executors having the authority or obligation to sell, and proceeding to do so at a time not remote from the death of the survivor.

[17]

In County Hotel & Wine Co. Ltd. v. London & North Western Railway Co. [3] the relevant words were contained in a lease for 999 years of certain land adjacent to a railway station. The lessee was to erect and maintain a hotel thereon, and it was provided that the lessee should "have the option in preference to any other party" of taking a lease on certain terms of the refreshment rooms on the station, "it being the intention and wish of the parties that the same persons should have the option of occupying both the hotel and the refreshment rooms." The refreshment rooms were at the time let to another tenant on a tenancy from year to year. It was held by the Court of Appeal and the House of Lords that the covenant conferred only a right of preference, and that it did not prevent the lessor from entering into possession itself of the refreshment rooms on the station on the termination of the tenancy from year to year. Duke L.J. said: "What they covenanted to do was to give to the tenant of the hotel the first refusal of the tenancy of the refreshment rooms in case of letting" [4] . In this case the words "in preference to any other party" were treated as decisively qualifying the word "option", and the later reference to the "intention and wish of the parties" was regarded as not detracting from the effect of those qualifying words. In other words, the option referred to in the recital of intention was the same option as that given above, and that option was a qualified option. In the House of Lords Viscount Cave said: "If the body of the covenant had stood alone, I should not myself have felt any doubt that it gives no more than a preferential right or "first refusal" of a tenancy" [1] . He then referred to the later provisions in the lease, saying that they did not justify giving any other meaning to the words of the covenant. It is interesting to note that McCardie J. had held the covenant to be void for uncertainty, referring to a decision of Warrington J. in Ryan v. Thomas [2] .

[23]

The last case which it is necessary to mention is one on which reliance was placed by the appellant. It is the case of Manchester Ship Canal Co. v. Manchester Racecourse Co. [1] . In this case the relevant words occurred in an agreement scheduled to an Act of Parliament. The agreement was between a canal company and a racecourse company, and it provided, inter alia, that, if and when certain lands belonging to the racecourse company ceased to be used as a racecourse, or should be proposed to be used for dock purposes, then and in either of such cases the racecourse company should give to the canal company the first refusal of the lands en bloc. No price or terms of sale were mentioned, but it was held that, since the agreement was scheduled to an Act of Parliament, it could not be attacked as void for remoteness or uncertainty: contrast Ryan v. Thomas [2] . Farwell J. said: "Now, a refusal, to my mind, implies an offer. A thing is not in ordinary parlance refused before it is offered" [3] . With this observation the Court of Appeal [4] agreed. The actual decision in the case, which was affirmed by the Court of Appeal, may be said to lend no support to the appellant's argument, because at the material time the racecourse company was actually proposing to sell the land to another purchaser. Very considerable importance, however, does, in our opinion, attach to what was said in the judgment of the Court of Appeal, which was delivered by Vaughan Williams L.J. His Lordship said: - "There appear to be two possible meanings of the words "first refusal": one is that they mean the opportunity of refusing a "fair and reasonable offer" by the racecourse company to sell the lands en bloc to the canal company; the other is that they mean the opportunity of refusing the land at a price acceptable to the racecourse company offered by some person other than the canal company, which is what we understand by the term "right of pre-emption" " [5] . His Lordship then points out that the "obligation to give a first refusal" arises in either of two specified events, and, in the light of this fact, of the main object of the agreement, and of other provisions contained in it, expresses the opinion that "there is at least fair ground for the contention that in either of the prescribed events the racecourse company was to make a fair and reasonable offer to sell the land to the canal company." He proceeds to consider the case on the assumption that this contention is well-founded, regarding the meaning so attributed to the words in question as a meaning more favourable to the defendants than the other. A little later Vaughan Williams L.J. says: "If one takes, as we have done in this judgment, the construction of cl. 3 most favourable to the defendants, the racecourse company on the happening of either of the alternative conditions came under the obligation to make a fair and reasonable offer to sell the lands to the canal company, and this, in our opinion, for reasons which we have already given, the racecourse company have never done" [1] .

[29]

It is notable that the covenant in question in this case is not contained in a lease or similar instrument. It is not a mere incident of an instrument which creates numerous rights and duties to be observed and performed by each party over a period. In such cases no special consideration is given for the covenant. But, in the present case, the sole purpose of the agreement is to create the right, and, if the respondents' construction of the agreement be correct, a substantial consideration is being paid for something which is as likely as not to prove wholly illusory. For let it be supposed that the agreement means, as the executors contend, no more than that they will not sell the property to anyone without first offering it to the appellant. It is not clear to us that, if that be the contract, any promise should be implied that MacLennan will not dispose of the property in his lifetime by sale or gift or settlement. It is not altogether easy to say that by any such disposition he is preventing his executors from observing a merely negative covenant. But let it be supposed that there is an implied promise by MacLennan that he will not make any disposition inter vivos of the property. He may by his will specifically devise the property, or he may by his will settle it in such manner that A is entitled to the rents and profits for life, and B is entitled on A's death to a conveyance of the property. We can see no reason why he should not do this. And we can see no reason for saying, on the assumed construction of the agreement, that the executors will commit a breach of contract if they convey the property to A in the one case, or to B in the other case, without reference to Woodroffe. On the appellant's construction no such possibilities arise. The executors are bound, on the occurrence of the second of the two events, to make an offer to sell the property, and it is clear that there is an implied term of the contract that MacLennan will do nothing to prevent their making an effective offer. Indeed it would seem that on that construction Woodroffe acquires an equitable interest in the land.