Woolworths Limited v About Life Pty Ltd

Introduction

1. The first defendant, About Life Pty Ltd (About Life), is the tenant under a registered lease No AJ194877N (the Lease) of retail premises situated at Double Bay, New South Wales (the Subject Premises). About Life operates grocery shops specialising in wholefood, health food products, ready-to-eat meals and cafe style offerings. The third defendant, Woollahra Municipal Council (the Council), is the landlord under the Lease.
2. On 21 April 2017, About Life entered into a contract for the sale of business (the Sale Contract) with the second defendant, Harris Farm Markets Double Bay Pty Ltd (Harris Farm). The business that is the subject of the Sale Contract (the Business) is carried on by About Life in the Subject Premises and the Sale Contract would involve the assignment of the Lease to Harris Farm. Harris Farm is a member of a group that carries on the business of the retail sale of fresh food and groceries. In these proceedings, Harris Farm seeks an order for specific performance of the Sale Contract by About Life. About Life has played very little part in the proceedings and has advanced no basis upon which it would be entitled to resist Harris Farm's claim for specific performance of the Sale Contract.
3. However, the plaintiff, Woolworths Limited (Woolworths), seeks an order restraining About Life from transferring its interest in the Lease to Harris Farm unless it has first offered to assign the Lease to Woolworths and Woolworths has declined such offer. Woolworths is a public company whose shares are listed on the Australian Stock Exchange. It is a large, national retailer. Its brands include "Woolworths" supermarkets and small format "Metro" stores, "Thomas Dux" grocery stores, "Big W" discount variety stores and "BWS" and "Dan Murphy's" liquor stores.
4. Woolworths bases its claims on a deed made in March 2014 between Woolworths and About Life (the Deed of Agreement), by cl 2.5 of which About Life irrevocably granted to Woolworths "a first right of refusal to lease the [Subject Premises]" if at any time during the term of the Lease specified circumstances existed or specified events occurred. It claims that the performance of the Sale Contract would have the effect of defeating such rights as it has under of the Deed of Agreement. Harris Farm advances several grounds upon which it says Woolworths is not entitled to any relief in respect of cl 2.5, including that cl 2.5 involved a breach by Woolworths of an undertaking (the Enforceable Undertaking) given by Woolworths to the Australian Competition and Consumer Commission (the Commission) for the purposes of s 87B(1) of the Competition and Consumer Act 2010 (Cth) (the Competition Act), which was formerly called the Trade Practices Act 1974 (Cth) (the Trade Practices Act).
5. The Council has been joined as a defendant because, under the terms of the Lease, About Life must not assign the Lease without the consent of the Council, in its capacity as landlord under the Lease. The Council has submitted to such order, except as to costs, as the Court sees fit to make.
6. In order to put the dispute between Woolworths and Harris Farm into context, it is necessary to say something about the background to the grant of the Lease and of the entry into the Sale Contract. First, however, it is necessary to say something about an inquiry into the competitiveness of retail prices for standard groceries (the Grocery Inquiry) conducted by the Commission in 2008, in consequence of which Woolworths gave the Enforceable Undertaking.

The Grocery Inquiry

1. On 14 March 2008, Woolworths made a written submission to the Commission in connection with the Grocery Inquiry (Woolworths' Inquiry Submission). Woolworths' Inquiry Submission referred to "cornerstone issues" articulated by the Commission upon which the Grocery Inquiry was founded. Those issues were as follows:

• a concern as to whether Australian grocery food prices had increased at a significantly higher rate than the headline inflation rate;
• a concern as to whether Australian food price inflation was higher than in many other industrialised countries;
• a concern as to whether Australia has a highly concentrated grocery industry; and
• on the basis of the above concerns, a concern as to whether Australian retail prices for standard groceries were competitive.

1. Section 5 of Woolworths' Inquiry Submission addressed the current food retailing environment and asserted that that environment is diverse and very competitive. It asserted that Woolworths operates in a "highly competitive take home food and grocery retail sector, which ensures that Australian consumers benefit from a wide choice of good quality, safe, fresh food and other groceries, at prices that are relatively low by world standards". In dealing with "trends in grocery retailing", Woolworths' Inquiry Submission asserted that "competition for the retail sale of grocery products occurs across a spectrum of formats, including supermarket, convenience and speciality stores and more generally across a spectrum of relevant competitive factors, including price, quality, service, range and convenience". It said that, while those formats have different characteristics, they are "ultimately seeking to meet the same consumer demand, and to increase their sales and share of sales in the face of competition".
2. Woolworths' Inquiry Submission also asserted that a significant trend in grocery retailing, described as the "top up trend", has been that customers are making more frequent, lower-value purchases in each visit to meet their short term needs for food and groceries. It said that that has resulted in a "shift away from a shopping mode in which customers made infrequent visits to a single retailer for a higher value purchase of a 'basket' of products". Woolworths' Inquiry Submission asserted that, as a result of the "top up trend", larger scale supermarkets compete "ever more closely with small supermarkets and convenience and speciality stores for the same retail sales, with each format adopting competitive strategies to capture such customers".

The Enforceable Undertaking

1. Woolworths executed the Enforceable Undertaking on 8 September 2009. The Commission accepted the Enforceable Undertaking on 17 September 2009. It was expressed to be for the purposes of s 87B of the Trade Practices Act.
2. Section 87B(1) of the Competition Act relevantly provides that the Commission may accept a written undertaking given by a person for the purposes of s 87B in connection with a matter in relation to which the Commission has a power or function under the Competition Act. Section 87B(3) of the Competition Act provides that, if the Commission considers that the person who gave such an undertaking has breached any of its terms, the Commission may apply to the Federal Court of Australia for an order under s 87B(4). If the Federal Court is satisfied that the person has breached a term of an undertaking, that Court may make all or any of the following orders: (a) an order directing the person to comply with that term of the undertaking; (b) an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach; (c) any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach; and (d) any other order that the Court considers appropriate.
3. The Enforceable Undertaking recited that, in 2008, the Commission had conducted the Grocery Inquiry and that the Grocery Inquiry Report had "identified concerns that restrictive provisions in lease agreements in respect of supermarket space could restrict the ability of supermarket operators to establish supermarkets in shopping centres". It also recited that "[l]ease agreements often involve major investment and long term commitment by both the supermarket operator and the shopping centre owner and provide a committed rental stream to assist to finance the development". Finally, the Enforceable Undertaking recited that, "[f]rom time to time, as a result of population growth and consequent growth in retail grocery demand in a particular area, opportunities arise for entry into retail grocery markets which may be accommodated through the expansion or reconfiguration of an existing shopping centre to provide additional supermarket space".
4. Relevantly for present purposes, the pivotal provision of the Enforceable Undertaking is cl 15, whereby Woolworths undertakes, for the purposes of s 87B, that it will not, and that its subsidiaries will not, "enter into a lease agreement that includes one or more restrictive provisions". The object of the Enforceable Undertaking is stated to be to eliminate the use of restrictive provisions in lease agreements, which the Commission considers may create a barrier to entry to markets for the acquisition of supermarket space and retail grocery markets. The Enforceable Undertaking contains definitions of the terms "lease agreement" and "restrictive provision". The effect of the Enforceable Undertaking depends upon those terms.

Background to the Lease

1. From February 1967, Woolworths operated a supermarket in premises owned by it on New South Head Road, Double Bay (the Old Supermarket Premises). From before December 2011, Woolworths and a related entity, Fabcot Pty Limited (Fabcot), owned several other parcels of land (the Woolworths Land) located near the Old Supermarket Premises. The Old Supermarket Premises and the Woolworths Land are separated by Kiaora Lane. The Council also owned other parcels of land (the Council Land) located near the Woolworths Land.
2. On 21 March 2011, a submission was made to the Woolworths Property Committee (the 2011 Submission) seeking approval for an agreement for lease for a proposed Thomas Dux store in the Subject Premises. The 2011 Submission said that Fabcot would provide the store to a "turn-key shell" in line with the specification of the "Woolworths supermarket kit", with amendments to finishes within the trading floor and areas as selected by Thomas Dux. The Woolworths supermarket kit is a design brief specification for new supermarkets and liquor stores of Woolworths.
3. The 2011 Submission stated that the Double Bay area is characterised by a wealthy population with an average income of nearly twice the average for the Sydney metropolitan area. The primary trade area population was said to be some 26,000 with a total trade population of some 66,000. The 2011 Submission stated Woolworths' reasons for proposing to take a lease of the Subject Premises. It stated that the development would provide for a Thomas Dux store on the ground floor with 195 parking spaces at its front door and a further 206 parking spaces on a roof top level, together with a Woolworths supermarket and a Dan Murphy's liquor store on the intermediate level. Reference was made to proposals for office space and a library to be constructed on the site. The 2011 Submission stated that the proposed Thomas Dux store would provide for the latest concept for the brand, which included refrigerated produce cabinets, bakery, café and sushi offerings. It stated that the Subject Premises would have an optimum size of 1,140 sq metres, which would allow for the full range of products offered by the Thomas Dux brand, while allowing customers room to move comfortably through the store.
4. In December 2011, the Council, Fabcot, Woolworths, Woolworths Property Double Bay Pty Ltd (Woolworths Double Bay) and Woolworths Properties Pty Ltd (Woolworths Properties) entered into a deed (the Development Deed) concerning the development of the Old Supermarket Premises, the Woolworths Land and the Council Land (together the Development Site). In the Development Deed, the parties recited that:

Arrangements between Woolworths and About Life

1. Mr Ralph Kemmler is Woolworths' Director of Property. He gave evidence by affidavits sworn on 30 June 2017 and 24 July 2017. He also gave oral evidence and was cross examined. As Director of Property, Mr Kemmler is responsible for the growth and development of Woolworths' property portfolio nationally, including freehold and leasehold interests. He has day-to-day oversight of Woolworths' national property team, which consists of approximately 140 employees. The property team is responsible for all aspects of the Woolworths group property network, including the identification and acquisition of new store sites, the refurbishments and re-development of existing stores, negotiating with landlords, managing existing leases and landlord relationships, procuring the necessary consents and approvals for developments and generally ensuring that Woolworths identifies and retains the best possible sites for the operation of its retail stores. Mr Kemmler has had over 25 years of experience in the property team. Mr Kemmler was responsible for the decision to seek, and for ultimately obtaining, the approval of Woolworths' Property Committee for the transaction with About Life.
2. In 2013, the growth of the "Thomas Dux" brand began slowing down and Woolworths decided not to open a Thomas Dux store in the Subject Premises. At that time, Woolworths was approached by About Life concerning the possibility of taking a lease of the Subject Premises. Mr Kemmler said that he believed, at the time, that, because the offerings of Woolworths and About Life did not overlap, the co-location of the two stores in the Kiaora Lane Building would be an attractive customer offering by reason of the diverse and complementary product ranges of the two stores. When asked in oral evidence-in-chief for his reasons for seeking the Property Committee's approval of the Deed of Agreement, with the first right of refusal in it, Mr Kemmler said that the Subject Premises was a very valuable piece of real estate and that, in considering the assignment to About Life, Woolworths wanted the ability, in the event that About Life wanted to assign the Lease, to itself go back into "that piece of real estate". He agreed that they were the reasons for wanting the first right of refusal in the Deed of Agreement.
3. On 18 November 2013, Mr Kemmler made a submission to the Woolworths Property Committee concerning a proposal for About Life to take the proposed lease of the Subject Premises (the 2013 Submission). The 2013 Submission referred to the approval by the Property Committee in April 2011 of the proposed new Thomas Dux store at Double Bay as part of the larger agreement with the Council and stated that, following that approval, the design for the new supermarket had changed to include the latest design, which captured "a large percentage of the Thomas Dux initiatives". It said that, further to the enhancements to the supermarket, the strategy for Thomas Dux had been revisited, and a direction had been given that loss making stores needed to break even and become profitable.

Arrangements between About Life and Harris Farm

1. The Sale Contract is dated 21 April 2017. It is in the form of the 2015 edition promulgated by the Law Society of New South Wales and the Real Estate Institute of New South Wales. The cover page of the Sale Contract described About Life as "vendor" and Harris Farm as "purchaser". Under the operative provision of the Sale Contract, the vendor sells and the purchaser buys "the business" for "the price". Under cl 1.1, "the business" is defined as the business identified on the cover page of the Sale Contract and includes "the chattels, fittings, fixtures and furniture, goodwill, licences, permits, plant, together with any other items referred to in [the] contract as forming part of the business".
2. Page 1 of the Sale Contract states the following as the "type of business": Retail sale and ancillary purposes including supermarket, banking facilities, the sales of alcoholic liquors and beverages and any other use permitted by law, carried on at the Premises. It is of some significance that the description of the type of business is identical to the permitted use under the Lease. The cover page of the Sale Contract described the "Premises" as follows: Retail Shop Premises shown on the Premises Plan annexed to the Lease at Kiaora Place, 1 Kiaora Road, Double Bay 2028. The cover page stated that the price is $10 million, with a deposit of $1 million. The cover page apportioned the price as follows: Goodwill $8,931,322 Equipment $1,068,678 It may be significant that no part of the price was apportioned to the Lease.
3. Clause 2 of the Sale Contract provided that the purchaser had to pay the deposit to the depositholder as stakeholder. The cover page specified the vendor's solicitor as depositholder. Harris Farm, as purchaser, paid the deposit of $1 million to About Life's solicitor at the time of making the Sale Contract, as provided for in cl 2.2.
4. Clause 10 of the Sale Contract relevantly provided as follows: 10.1 The vendor promises that, to the best of the vendor's knowledge and other than as disclosed in this contract- 10.1.1 the vendor has full authority and capacity to enter into this contract and sell the business; 10.1.2 the vendor has absolute title to the business; 10.1.3 the business and the lease is not subject to any charge, encumbrance, lease, mortgage, security interest under the PPS Act or other liability or security; … 10.2 These promises are made as at the contract date and are also made as at completion, other than 10.1.3, which is made at completion only. … "PPS Act" is defined as the Personal Property Securities Act 2009 (Cth).

Woolworths' Intentions

1. Mr Matthew Franich is the General Manager, Property Management, of Woolworths. He joined Woolworths in May 2015 as the head of small format stores and petrol. Mr Franich swore an affidavit on 29 May 2017. While the affidavit was not read on behalf of Woolworths, parts of it were tendered by Harris Farm and admitted without objection.
2. Mr Franich described the supermarket that Woolworths opened in the New Supermarket Premises on 5 June 2014 as a "large" one, being in the order of 5,000 sq metres, whereas most Woolworths supermarkets are in the range of 3,000 to 4,000 sq metres. He said that the New Supermarket Premises contained a number of new features not available at many Woolworths supermarkets elsewhere, making it a "flagship store for the 'Woolworths' network". Mr Franich said that, since it opened, the Woolworths supermarket at Double Bay has performed very well and has met or exceeded its forecast performance, such that it is likely, on the current trajectory, that the store will be one of the top two or three performing stores nationally for Woolworths within the next two or three years.
3. Mr Franich also said that the offering of products available at the About Life store is "quite different" from the products available at the Woolworths supermarket, because About Life focuses very much on wholefoods and health food products and ready-to-eat meals. Consequently, the two stores, being located close together, present a more attractive customer offering because of the breadth of products on offer. Woolworths "enjoys the benefit of that proximity".
4. Mr Franich said that, in those circumstances, the opportunity to exercise the first right of refusal conferred by cl 2.5 of the Deed of Agreement, and to occupy the Subject Premises, is of significant value to Woolworths. He said that Woolworths initially agreed to relinquish its right to the Subject Premises to About Life because, having decided not to expand its Thomas Dux business, it had no immediate use for the Subject Premises and, because of the symbiotic relationship between Woolworths and About Life, was content to see About Life take the Lease in its place.
5. However, Mr Franich said that that is no longer the case and that Woolworths would value the opportunity to establish "its own smaller innovative retail offering such as a Woolworths Food Quarter", which would predominantly provide ready-to-eat meals in a similar fashion to About Life, expansion of Woolworths' e-commerce operation through "Click & Collect", or a Dan Murphy's cellar business, of the kind operated by Woolworths from its store in Prahran, Victoria. He said that that type of offering would sit well with the existing Woolworths supermarket and Dan Murphy's liquor store now operating at Double Bay and would not diminish and would possibly improve the trading performance of the Woolworths supermarket and would give Woolworths additional revenue and profit from the retail offering to be conducted from the Subject Premises.

The Proceedings

1. By its amended summons filed on 18 July 2017, Woolworths claims, primarily, an order that About Life assign, transfer or otherwise dispose of its interest in the Lease to Woolworths on the same terms as those proposed for the assignment of the Lease to Harris Farm under the Sale Contract or, alternatively, on fair and reasonable terms. Woolworths also claims an order restraining About Life from assigning, transferring or otherwise disposing of its interest in the Lease to Harris Farm.
2. Alternatively, Woolworths claims an order that About Life offer to assign, transfer or otherwise dispose of its interest in the Lease to Woolworths on the same terms as those proposed for the assignment of the Lease to Harris Farm under the Sale Contract or on fair and reasonable terms. Woolworths also claims an order restraining About Life from assigning, transferring or otherwise disposing of its interest in the Lease to Harris Farm unless and until About Life has made an offer to Woolworths in the terms above and Woolworths has elected to refuse the said offer. Woolworths also claims equitable damages.
3. By its cross-claim filed on 16 June 2017, Harris Farm claims declarations that it has an equitable interest in the Lease and that Woolworths has no interest in the Lease. Alternatively, Harris Farm claims a declaration that its equitable interest in the Lease ranks in priority to any interest that Woolworths has in the Lease. Harris Farm also claims an order for specific performance by About Life of the Sale Contract and an injunction restraining About Life from taking any steps to offer, assign, transfer or otherwise dispose of its interest in the Lease to Woolworths. In the alternative, Harris Farm claims damages against About Life for breach of contract.
4. It is common ground as between Woolworths and Harris Farm that damages would not be an adequate remedy for breach by About Life of cl 2.5 of the Deed of Agreement or breach by About Life of the Sale Contract. That is to say, each of Woolworths and Harris Farm accepts that, if the other is successful, appropriate orders for specific performance should be made against About Life. The question of damages that the unsuccessful party as between Woolworths and Harris Farm would be entitled to recover from About Life has been deferred.
5. The first broad issue raised in the proceedings is whether Woolworths has a relevant interest in the Lease. Harris Farm contends that Woolworths does not have a relevant interest by reason of the following: (a) Clause 2.5 of the Deed of Agreement was entered into by Woolworths in breach of the Enforceable Undertaking and is therefore void or unenforceable for illegality or as being contrary to public policy; (b) Clause 2.5 of the Deed of Agreement is void for uncertainty; (c) Clause 2.5 of the Deed of Agreement is void or unenforceable as being contrary to the public policy in favour of the free alienability of land; and (d) if, contrary to the above contentions, cl 2.5 of the Deed of Agreement is not void or unenforceable, it confers no more than a contractual right in personam as against About Life.

Construction of Clause 2.5

1. Woolworths bases its case principally on cl 2.5(a) of the Deed of Agreement. Alternatively, it relies on cl 2.5(e). Thus, it says, About Life is prohibited by cl 2.5 from assigning the Lease to Harris Farm without first making an offer to Woolworths because About Life either:

• wishes to assign the Lease to a third party, namely, Harris Farm; or
• proposes a dealing or action, namely, completing the Sale Contract, that would result in a third party, namely, Harris Farm, occupying the Subject Premises.

1. In that regard, two questions arise. The first concerns the content of the obligation of About Life to give Woolworths a first right of refusal. In relation to that question, Harris Farm contends that cl 2.5 is void for uncertainty. The second concerns the formation of the relevant wish referred to in cl 2.5(a) or the formation of the proposal referred to in cl 2.5(e).

Content of Clause 2.5 and Uncertainty

1. No binding and enforceable contractual obligation can arise unless at least the essential or critical terms of the bargain have been agreed upon, such that the contract may be considered "certain" and "complete". Accordingly, there will be no concluded contractual obligation where an essential or critical term is left to be settled by future negotiation and agreement between the parties. [3] If the parties have not agreed on all of the essential terms and at least one essential term remains to be settled by future negotiation and agreement, without an adequate mechanism for resolving any disagreement being included, [4] a contract will be incomplete and unenforceable, no matter what the parties themselves may think. That will be the case, notwithstanding that one of the parties might have commenced performance of its obligations under the putative contract. While restitutionary principles may be applicable in relation to the performance, the contract itself will be incomplete and therefore unenforceable. [5]
2. More particularly, an option to purchase will be unenforceable and void by reason of uncertainty if no purchase price is agreed. [6] For example, a clause in a joint venture agreement that purports to give one party pre-emptive rights to acquire the interest of the other, upon a change of control, will be void for uncertainty if it does not provide the terms, particularly as to price, on which the interest is to be acquired. [7] Again, where the owner of the whole of a building grants a right of first refusal to purchase a part of the building at a price and upon terms and conditions that the grantor is willing to sell to an unrelated third party, and the owner proposes to sell the whole of the building, it will not be possible to enforce the right in relation to the part because the terms upon which the sale of the part is to be offered to the grantee are undetermined. It may be that the grantee would have the right to require the grantor to offer to sell the whole of the building to the grantee on the terms on which it proposes to sell to a third party. However, the right could not require the grantor to offer to sell the part only to the grantee because there is no mechanism for determining the price of the part. [8]
3. Harris Farm contends that cl 2.5 is ineffective to create an enforceable obligation because it is silent as to what it is that is to be offered to Woolworths that Woolworths has the right to refuse and it is also silent on the terms on which the offer is to be made. In that regard, a right of first refusal in relation to property might be expressed in several different ways. For example, it might set out the price and all of the relevant terms and conditions, leaving only the trigger for the exercise of the right to occur. Alternatively, it may leave the price and other terms and conditions to be specified by the grantor, once the grantor decides to dispose of the relevant property. Again, the right might depend upon the receipt by the grantor of an offer from a third party, such that the grantor is then obliged to offer the relevant property to the grantee at a price and on terms and conditions no less favourable than those offered by the third party. [9] Such a right might be formulated with particular precision, outlining specific steps to be taken within specified timeframes. Reported cases demonstrate the variety of language that might be employed in order to create a valid first right of refusal. [10]

Formation of the Wish

1. Even if there may be some doubt about the outer limits of a relevant "wish" or "proposal", those concepts encompass at least a situation where About Life decides to enter into a formal agreement with a third party on defined terms, including terms as to price. That must have occurred at some time prior to the entry by About Life into the Sale Contract. That About Life formed a wish to assign the Lease is evidenced by an email chain of 21 April 2017 that preceded the entry into the Sale Contract.
2. As at 21 April 2017, the only directors of About Life were Mr Thomas Beecroft, Ms Tammie Phillips and Mr Michael Green. On that day, Ms Bronwyn Badcock of Maddocks Lawyers was acting for About Life in relation to the proposed transaction with Harris Farm. At 5.19 pm on 21 April 2017, Ms Badcock sent an email to Mr Beecroft, Ms Phillips and Mr Green headed "About Life sale to Harris Farm". Ms Badcock referred to "final changes" to the proposed contract that were required by Harris Farm and requested confirmation as to whether those changes were agreed. Ms Badcock said that her colleague was on her way to the office of the solicitors for Harris Farm to exchange contracts but that, before exchanging, her colleague would wait to receive confirmation from her that the changes had been authorised. At 5.26 pm Mr Beecroft replied to Ms Badcock saying, relevantly, "I confirm those are agreed". At 5.38 pm Ms Phillips responded saying "AlI agreed - thanks". At 5.53 pm Mr Green responded saying "Nice work guys!". At 7.30 pm on 21 April 2017, counterparts of the Sale Contract were exchanged and Harris Farm and About Life thereby became bound by the Sale Contract.
3. It is clear that, before 7.30 pm on 21 April 2017, About Life had either formed a wish to assign the Lease to Harris Farm, on the terms of the Sale Contract, or alternatively proposed a dealing with the Lease, namely the Sale Contract, that would result in Harris Farm being entitled to occupy the Subject Premises. Accordingly, cl 2.5 of the Deed of Agreement was triggered. It is common ground that About Life did not, prior to the exchange of counterparts of the Sale Contract, make any offer to Woolworths that would involve Woolworths taking an assignment of the Lease or entering into a dealing or other action that would result in Woolworths occupying the Subject Premises.

Breach of the Enforceable Undertaking

1. Two questions arise in relation to the Enforceable Undertaking. The first is whether cl 2.5 of the Deed of Agreement constitutes a breach of the Enforceable Undertaking. The second is whether, assuming that it does, that has the consequence that cl 2.5 is void or unenforceable.

Whether Clause 2.5 breached the Enforceable Undertaking

1. Harris Farm contends that cl 2.5 of the Deed of Agreement is a restrictive provision within the meaning of cl 7(e) of the Enforceable Undertaking. It places emphasis on the definition of shopping centre as including a shopping centre "as expanded and/or reconfigured". It contends that a purposive construction of the Enforceable Undertaking would not permit Woolworths to avoid engagement of the Enforceable Undertaking by reason of the reconfiguration of the Development Site and the relocation of Woolworths' operations from the Old Supermarket Premises to the New Supermarket Premises in June 2014.
2. Thus, Harris Farm says that the relevant shopping centre is a complex that includes both the buildings in New South Head Road, where Woolworths operated prior to 5 June 2014, and the new Kiaora Lane Building, where Woolworths operated after 4 June 2014. It says that the two sites were part of the one development and that Woolworths moved from the New South Head Road premises to the Kiaora Lane Building without a break. It describes the two as a "composite shopping centre".
3. Harris Farm asserts that Woolworths was a relevant supermarket located in the composite shopping centre prior to 5 June 2014 in the New South Head Road premises. Those New South Head Road premises constituted supermarket space as defined because they were "retail premises" within the ordinary meaning of that phrase and they were "for the purpose of operating a supermarket".
4. Harris Farm says that it is not necessary to look beyond the objective uses or purposes that are permitted because the Enforceable Undertaking is concerned with the unavailability of supermarket space as a barrier to entry in relevant markets. It asserts that the mere potentiality for space to be used for the purpose of a supermarket serves the pro-competitive purpose of lowering barriers to entry, which engages the Enforceable Undertaking whether or not the space is in fact later used as a supermarket. Alternatively, Harris Farm says, the purpose is demonstrated by the actual uses or contemplated uses as follows:

• the original contemplated use of the Subject Premises as a Thomas Dux store;
• the actual use of the Subject Premises by About Life as an About Life store;
• the contemplated use of the Subject Premises by Harris Farm as a Harris Farm store; and

Consequences of Breach of the Enforceable Undertaking

1. In light of the conclusion reached above, it is not strictly necessary to deal with this question. However, in the circumstances, it is desirable to do so.
2. There are three categories of case in which an agreement may be unenforceable by reason of statutory illegality. The first case is where the making of the agreement, or the doing of an act that is central to the formation of the agreement, is expressly prohibited by the statute, either absolutely or conditionally. The second is where the making of the agreement, or the doing of the act, is impliedly prohibited by the statute, for example, where the agreement is to do an act, the doing of which is prohibited by the statute. The third case is where the making of the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a contract associated with or in the furtherance of illegal purposes. [15]
3. When a statute expressly prohibits the making of a particular contract, a contract made in breach of the prohibition will be illegal, void and unenforceable, unless the statute otherwise provides, either expressly or by implication from its language. [16] The Competition Act does not otherwise provide, either expressly or by implication, that an agreement entered into in breach of an undertaking under s 87B is illegal, void or unenforceable. Section 87B is not a provision of the kind for which all consequences of breach are necessarily to be found expressly in the statute itself. However, it is arguable that breach of an undertaking is an unlawful act for the purpose of the tort of conspiracy by unlawful means. [17] Even if that be so, that is not the case presently before the Court.
4. An agreement may be unenforceable, even if it is not expressly or impliedly prohibited by a statute, if it is an agreement associated with or in the furtherance of illegal purposes, as indicated above. In that case, the Court acts to uphold the policy of the law, which may, but does not necessarily, make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. It is necessary for the Court to discern from the scope and purpose of the relevant statute whether the legislative purpose will be fulfilled without regarding the agreement as void and unenforceable. The central policy consideration at stake is the coherence of the law. [18]

Restriction on Alienability of Land

1. It is a principle of the law that private property should be freely alienable and that a contractual restriction upon the alienation of an interest in property, if unqualified, should be considered void. Further, a fetter on alienation may be imposed by a covenant that is as effective over a very long period of time to prevent alienation of land as a condition subsequent had it been valid. [25] However, a restraint on alienation will be void only if it is total and is not imposed for the protection of a valid collateral object. [26]
2. A right of first refusal can attract the operation of the principle in some circumstances. It will be necessary to consider the scope of the prohibition imposed by the right of refusal, the period for which the right operates, whether the grantor of the right must extract a similar promise from a subsequent purchaser and whether the right is to be exercised by reference to a fixed price. [27] Thus, a right of first refusal that confers on the grantee the right to acquire property at a significant under-value if the grantor wishes to alienate the property, may well constitute a restraint on alienability in contravention of the principle. [28] The principle will apply to the alienation of a leasehold interest as well as to the alienation of a freehold interest.
3. Harris Farm contends that the principle is offended in the present case by the operation of cl 2.5(d) of the Deed of Agreement. Under that provision, the first right of refusal to lease the Subject Premises arises if About Life becomes insolvent or is otherwise in material breach of the Lease, such that the Council is entitled to terminate the Lease. Woolworths contends that, under cl 2.5, it would be entitled to acquire the Lease from About Life on the same terms as the Council would acquire the Lease upon its termination or forfeiture. In those circumstances, the Council would not be required to pay any consideration to About Life for the termination or forfeiture of the Lease. Accordingly, Woolworths would be entitled to take the Lease for no consideration. On the other hand, the Lease may have substantial intrinsic or inherent value. There would therefore, de facto, be a restraint on alienation by About Life.
4. Harris Farm does not contend that a first right of refusal, of itself, would contravene the principle against inalienability, in circumstances where the right of the grantee were to acquire property on terms no more favourable than the terms on which the grantor proposes to dispose of the property to a third party. Thus, in the present circumstances, cl 2.5 operates to prohibit About Life from assigning the Lease unless it has first offered to assign the Lease to Woolworths on terms that are no less favourable than the terms upon which About Life proposes to assign to a third party and Woolworths has refused the offer.

Woolworths' Claim in Relation to the Lease

1. Harris Farm contends that, assuming that cl 2.5(a) is enforceable and is not void for any of the reasons advanced above, it confers upon Woolworths no more than a contractual right against About Life and does not confer upon Woolworths any equitable interest in the Lease or the Subject Premises. Harris Farm asserts that the first right of refusal is merely a matter of contract and is not capable of constituting an interest in the subject matter of the right, in this case, the Lease or the Subject Premises. Secondly, it says, as a matter of construction, the right conferred by cl 2.5 did not "fructify" or mature into an interest in the Lease or the Subject Premises.
2. Woolworths accepts that the grant of a right of first refusal or first right of refusal in relation to an estate or interest in land does not, of itself, immediately upon grant, confer any interest in land upon the grantee of the right. [29] It says, however, that once events have occurred that trigger the operation of the right to receive an offer before alienation to a third party, the right of first refusal may confer on the grantee of the right an interest in the relevant property. [30]
3. It is common ground that a contractual promise does not of itself create an equitable interest in the subject matter of a right of refusal. Harris Farm says that nothing in cl 2.5 of the Deed of Agreement indicates that the right conferred on Woolworths is anything other than a promise by About Life that it will not assign the Lease to a third party without first offering to Woolworths the right to refuse an assignment to it. Thus, Harris Farm says, nothing in the language of cl 2.5 would entitle Woolworths to call for a conveyance or assignment of the Lease or any interest in the Subject Premises that would be a proprietary right. Harris Farm asserts that, as a matter of principle, even though the trigger for the exercise of the first right of refusal may have been pulled, that of itself does not give rise to a proprietary right or interest in the subject matter of the right. [31]
4. Woolworths, on the other hand, contends that where, in the events that transpire, the grantor of a right of refusal in relation to property can be deprived of the relevant interest in that property without any further action on the part of the grantor or where the grantee is entitled to an order for specific performance requiring the grantor to perform the agreement, the purely contractual right will "fructify" or mature into a proprietary right in relation to the relevant property. [32]

Harris Farm's Claim in Relation to the Lease

1. It is common ground that the effect of the Sale Contract was to impose on About Life an obligation, on completion of the Sale Contract, to assign the Lease to Harris Farm. Harris Farm paid the deposit of $1 million on exchange of counterparts and, at all times since the Sale Contract came into existence, has been ready, willing and able to complete it. However, completion is conditional upon the Council consenting to the transfer of the Lease from About Life to Harris Farm. Nevertheless, it is clear that, absent any entitlement on the part of Woolworths under cl 2.5 of the Deed of Agreement, once that condition is satisfied, if About Life failed to perform its obligations under the Sale Contract, Harris Farm would be entitled to obtain an order for specific performance of the Sale Contract by About Life.
2. It is inappropriate to describe About Life as trustee and Harris Farm as cestui que trust in relation to the subject matter of the Sale Contract, including the Lease. To do so would conceal the essentially contractual relationship that governs the rights and duties of About Life and Harris Farm under the Sale Contract. The "interest" of a party under a contract for the purchase of real property is commensurate with the availability of specific performance in respect of that contract. Whether that "interest" is properly to be characterised as a proprietary interest in the subject matter of the contract, in this case the Lease, is not to the point. The interest that Harris Farm has under the Sale Contract, absent cl 2.5 of the Deed of Agreement, is the right to have the Sale Contract specifically performed, if need be, by order of the Court. A Court of Equity may intervene if necessary, by the grant of equitable relief in the form of an injunction, to preserve that interest. [36]

Timing of Respective Claims

1. Harris Farm contends that its interest preceded any relevant interest of Woolworths. It asserts that any relevant interest that Woolworths might have obtained under cl 2.5 of the Deed of Agreement could only have arisen, if it arose at all, when the conditions for the exercise of the first right of refusal arose. Relevantly, they were that About Life:

• formed the wish to assign the Lease to a third party; and
• proposed a dealing or action that would result in a third party occupying the Subject Premises.

1. Thus, cl 2.5 is engaged by a "wish" to assign or a "proposal" to deal or act and not by an assignment or dealing or action of itself. Harris Farm contends that About Life's "wish" or "proposal" could only trigger the first right of refusal when it was given content that was sufficiently binding on About Life. As noted above, it contends that Woolworths' relevant interest arose only as a consequence of the Sale Contract being entered into and that it must, therefore, be second in time. Alternatively, Harris Farm contends, it is possible that the respective interests of Harris Farm and Woolworths arose simultaneously, namely, at the point when the Sale Contract came into existence, which occurred when counterparts were exchanged at 7.30 pm on 21 April 2017. Woolworths, on the other hand, contends that its interest came into existence no later than 5.53 pm on 21 April 2017 and, therefore, preceded any interest of Harris Farm.
2. It is clear that each of Woolworths and Harris Farm has, subject to the claims of the other, an enforceable contractual right against About Life and About Life owes a contractual obligation to each of them. It is also clear that the right of Woolworths and the obligation of About Life under cl 2.5 came into existence before the right of Harris Farm and the obligation of About Life under the Sale Contract. The rights of both Woolworths and Harris Farm are contractual and About Life continues to be the beneficial owner of the leasehold interest under the Lease, subject to its contractual obligations to both Woolworths and Harris Farm that may or may not be enforced by order of this Court. However, by performance on the part of About Life, either voluntarily or under compulsion by a court order, the rights of Woolworths or the rights of Harris Farm will be converted into proprietary interests in the Lease.

Postponing Conduct

1. In determining whether Harris Farm has a better equity than Woolworths, all of the circumstances in which their respective interests were acquired must be explored. In equity, merit consists in those matters that impinge on the conscience of those who seek its aid or are otherwise subject to its jurisdiction. Accordingly, priority is to be resolved against the holder of the prior interest only if the later party can establish the first holder's want of merit or comparative lack of merit. That will require an inquiry into the behaviour on the part of both claimants as to whether the interest of a claimant can be shown to have been obtained or enforced in a manner that is unconscionable or inequitable, so as to deprive the holder of the earlier interest of the priority to which it would otherwise be afforded. That behaviour might consist of fraud, unfairness, negligence, wrongful creation of assumptions and the like. [38]
2. Harris Farm did not have actual or constructive knowledge of the first right of refusal granted to Woolworths under cl 2.5 of the Deed of Agreement. Harris Farm conducted a range of suitable inquiries in relation to the Lease. Clearly enough, there is nothing in the Lease itself to give any hint of the existence of the right granted by cl 2.5 of the Deed of Agreement. Mr Angus Harris, the Chief Executive Officer of Harris Farm, reviewed the Lease and twice asked Mr Green, the Chairman of Directors of About Life whether there were any restrictions on About Life selling its interest in the Subject Premises to Harris Farm. He was assured on both occasions that there were no restrictions. Those assurances were passed onto the solicitors acting for Harris Farm. The question, of course, is not concerned with the conduct of Harris Farm, but with the conduct of Woolworths.
3. Harris Farm claims to have the better equity in relation to the Lease on two bases. The first is that Woolworths' interest was obtained in connection with its breach of the Enforceable Undertaking. That, it says, was an inequity that had immediate and necessary relation to the interest that Woolworths now seeks to assert. [39] The second basis advanced on behalf of Harris Farm is that Woolworths armed About Life with the indicia of title to the Lease and failed to take steps that were available to put a potential assignee of the Lease on notice of the right granted by cl 2.5 of the Deed of Agreement.

The Enforceable Undertaking

1. Harris Farm contends that any interest that Woolworths has arose from the very type of clause that it had undertaken to the Commission not to include in an agreement to which it was a party. On the other hand, there was no suggestion that Harris Farm's interest arose from any such iniquitous conduct. Therefore, Harris Farm says, it has the better equity and the circumstances concerning the Enforceable Undertaking give good cause for this Court not to grant discretionary relief to Woolworths in relation to its claimed interest. Harris Farm also contends that, even if a breach or contravention of the Enforceable Undertaking did not lead to voidness or invalidity of cl 2.5, it would be sufficient to deny Woolworths' entitlement to discretionary equitable relief. That basis of postponement, however, falls away if cl 2.5 of the Deed of Agreement did not involve a contravention or breach of the Enforceable Undertaking.
2. Further, that consequence would not follow unless the breach of the Enforceable Undertaking contributed in some way to Harris Farm's entering into the Sale Contract. Harris Farm contends that it entered into the Sale Contract on the assumption that About Life was not breaching an obligation to a third party by doing so. If that assumption were induced by Woolworths, as Harris Farm contends, there may be postponing conduct. However, there is no causal relationship between a breach of the Enforceable Undertaking and Harris Farm's decision to enter into the Sale Contract.
3. The focus must be on the position of the earlier interest holder and, in particular, whether that interest holder has contributed to the later interest holder acquiring its interest without notice of the earlier interest. The question is whether, if cl 2.5 constituted a breach of the Enforceable Undertaking, the breach in any way facilitated the creation of Harris Farm's interest or led Harris Farm into acquiring its interest without notice of the earlier interest of Woolworths.
4. The breach by an earlier interest holder of an obligation it owes to a third party is not a basis for postponing the earlier interest to the later one. The question of whether the Enforceable Undertaking should be the subject of a court order is a matter for, first, the Commission, and then the Federal Court. It is not a matter for this Court, assuming that there was no consequence of voidness or unenforceability of cl 2.5 by reason of the breach. The fact that the breach may provide a basis for legal action by a third party, such as the Commission, does not affect the question of what is fair as between the earlier interest holder and the later interest holder. [40] The conduct or behaviour of the interest holder must have in some way contributed to the assumption on which the subsequent interest holder acted when acquiring its interest. Breach of the Enforceable Undertaking would not constitute postponing conduct.

Indicia of Title

1. Harris Farm asserts that Woolworths could have taken steps to ensure that the interest created by cl 2.5 of the Deed of Agreement could have been protected by lodging a caveat against any dealing affecting that interest. Alternatively, it says, Woolworths could have taken steps to ensure that the right granted by cl 2.5 was referred to in some way in the Lease by, for example, insisting upon a term in the Deed of Agreement that required About Life not to enter into a lease with the Council that did not make reference to the right conferred by cl 2.5. Harris Farm says that Woolworths could have suggested to About Life that the Lease be drafted in a way that required notice to be given to Woolworths before any assignment of the Lease could be effected.
2. Harris Farm asserts that no explanation has been given as to why Woolworths took none of those steps. It says that the way in which the transaction evidenced by the Deed of Agreement was structured contributed to the assumption upon which Harris Farm acted when entering into the Sale Contract, that there was no restriction imposed on About Life preventing it from entering into the Sale Contract insofar as it entailed the assignment of the Lease. Thus, Harris Farm asserts that it was reasonably foreseeable by Woolworths that About Life could act in breach of the right conferred by cl 2.5 by entering into an agreement to assign the Lease to a third party, or otherwise deal with the Lease, without first offering to Woolworths the right of refusal to take such an assignment or enter such a dealing.
3. Further, Harris Farm says, it was reasonably foreseeable by Woolworths that a third party would assume, from the face of the public record, including the Lease, which was registered under the Real Property Act 1900 (NSW), that there was no restraint such as the first right of refusal reportedly granted by cl 2.5. [41] Harris Farm contends that, since Woolworths chose to structure its transaction with About Life in a manner that gave rise to that foreseeable risk, it should suffer the consequences of that risk eventuating and not the innocent third party, Harris Farm. Those circumstances, Harris Farm asserts, make Harris Farm's "equity" better than Woolworths' "equity".
4. Woolworths denies that there has been any behaviour or conduct on its part that could result in the postponement of its rights under cl 2.5 to the rights of Harris Farm under the Sale Contract. It says that there is no basis for assuming that, had Woolworths sought to include in the Deed of Agreement the kinds of provisions referred to by Harris Farm, About Life and the Council would have accepted those terms. The contention also assumes that a reasonably prudent assignor in the position of Woolworths, in negotiating the Deed of Agreement, would have sought to include such terms. There was no evidence that such a practice existed. There is no basis for making an assumption from the terms of the Lease that, because no reference is made to a right such as that granted by cl 2.5, that no such right existed. There was no suggestion that it is the general practice of competent persons in the position of Woolworths, or its solicitors, to seek the inclusion of such terms.

Priority

1. Priority should be determined according to when value is given. Woolworths gave value for the right granted by cl 2.5 of the Deed of Agreement when it entered into the Deed of Variation and performed its obligations under cl 2.3 of the Deed of Agreement. Clause 2.2 of the Deed of Variation provided for the variation of the Development Deed to provide that the Council was no longer required to grant to Woolworths a lease of the Subject Premises. The effect was that the Council was then free to enter into the Deed of Agreement for lease with About Life on 16 May 2014. Under cl 2.3 of the Deed of Agreement, Woolworths promised to do all things reasonably required by the Council in considering About Life's request to lease the Subject Premises.
2. On the other hand, the Sale Contract is still fully executory, except insofar as Harris Farm has paid the deposit to the stakeholder and the parties have taken steps to satisfy the condition precedent of obtaining the Council's consent to the assignment of the Lease. At this stage, while it has paid the deposit, Harris Farm has not yet finally parted with the deposit, which is held by the stakeholder, and it has not paid the balance of the purchase price.
3. Thus, cl 2.1 of the Sale Contract provided that Harris Farm must pay the deposit to About Life's solicitor, Maddocks, as stakeholder on the making of the contract. Clause 20.3 provided that, on completion, About Life must cause the legal title to the business to pass to Harris Farm and, clause 20.5 provided that Harris Farm must pay the price, less any deposit paid, as well as take over the burden and benefit of the continuing agreements listed and indemnify About Life against any liability under those agreements arising after completion. Under cl 20.7, Harris Farm is required, on completion, to give to About Life an order signed by Harris Farm authorising the deposit holder to account to About Life for the deposit. Under cl 20.8, the deposit belongs to About Life on completion.
4. If the Sale Contract were to be terminated by reason of the failure of About Life to perform, the deposit would be returned to Harris Farm. It is only on completion of the Sale Contract, when About Life gives title to Harris Farm in exchange for the payment of the balance of the purchase price of $9 million that the deposit would become the property of About Life.

Conclusion

1. There is at present no suggestion that About Life proposes to assign the Lease on any terms other than under the Sale Contract. It follows from the conclusions above that Woolworths is entitled to relief under its summons in the nature of an order restraining About Life from assigning, transferring or otherwise disposing of its interest in the Lease under the Sale Contract unless it has first offered to assign the Lease to Woolworths on terms equivalent to the Sale Contract and, within a reasonable period, Woolworths has refused that offer. It also follows that, if such an offer is made and accepted and the consequential contract is completed, Harris Farm's claim for specific performance of the Sale Contract should be dismissed. On the other hand, if no such offer is made or if any contract between About Life and Woolworths is not completed, Harris Farm would be entitled to an order for specific performance of the Sale Contract. The questions of claims for damages against About Life by each of Woolworths and Harris Farm remain outstanding. There may also be ancillary matters that require attention, such as removal of caveats.
2. In the circumstances, I propose to direct Woolworths to bring in short minutes to give effect to the conclusions that I have reached on the principal questions raised in the proceedings. The short minutes should also address ancillary orders consequent upon those conclusions as well as directions for the further conduct of the proceedings. I shall hear the parties as to the appropriate order as to costs of the proceedings to date.

Endnotes

1. See Macquarie Dictionary.
2. See Oxford English Dictionary online.
3. See Thorby v Goldberg (1964) 112 CLR 597 at 607; [1964] HCA 41.
4. See Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600; [1982] HCA 53.
5. See Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [61]-[63].
6. See Hall v Busst (1960) 104 CLR 206; [1960] HCA 84.
7. See Goldus Pty Ltd v Australian Mining Pty Ltd [2015] SASC 32.
8. See Transfield Properties (Kent St) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321 at 336.
9. See Witham v Witham [2000] WASC 236 at [109]; Woodroffe v Box (1954) 92 CLR 245 at 251; [1954] HCA 22.
10. See Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510; Transfield Properties (Kent St) v Amos Aked Swift (1994) 36 NSWLR 321; THL Robina Pty Ltd v The Glades Golf Club Pty Ltd [2005] 2 Qd R 186; [2004] QSC 461; Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; [1993] HCA 45; Sahade v BP Australia Pty Ltd (2004) 12 BPR 22,149; [2004] NSWSC 512; Pata Nominees Pty Ltd v Durnsford Pty Ltd [1988] WAR 365; Woodroffe v Box (1954) 92 CLR 245; [1954] HCA 22; Esso Australia Ltd v Air Ride Transportation Pty Ltd, John Holmes, Ken Stevenson And Mobil Oil Australia Ltd (Supreme Court (Vic), Marks J, 28 September 1988, unrep); John Nitschke Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334; [2004] SASC 128; Walker Corporation Pty Ltd v WR Pateman Pty Ltd (1990) 20 NSWLR 624; Warren v Lawton (No 3) [2016] WASC 285.
11. See Mackay v Wilson (1947) 47 SR (NSW) 315 at 324-325; Woodroffe v Box (1954) 92 CLR 245; [1954] HCA 22 at 257.
12. See Manchester Ship Canal Company v Manchester Racecourse Company [1901] 2 Ch 37 at 46-47.
13. See Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [47]; [2015] HCA 37.
14. See Upper Hunter County DC v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436-437; [1968] HCA 8.
15. See Gnych v Polish Club Ltd (2015) 255 CLR 414 at [35]; [2015] HCA 23.
16. See SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 at [34]; [2006] HCA 31.
17. See Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169 at [18]-[19].