Reported Decision : (2005) NSW ConvR 56-113 New South Wales Supreme Court CITATION : Sahade v BP Australia Pty Limited [2004] NSWSC 512 HEARING DATE(S) : 7 June 2004 JUDGMENT DATE : 28 June 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Right of first refusal validly exercised. Grantee of right of first refusal has priority over grantee of option. CATCHWORDS : CONVEYANCING - right of first refusal to purchase - how right of first refusal to purchase operates when grantor of right of first refusal grants an option to purchase to someone else - WORDS AND PHRASES - "purchase" - EQUITY - equitable estates and interests - conversion of right of first refusal into an equitable interest - EQUITY - priority and notice - relative priorities of grantee of right of first refusal, and grantee of option, when granting of option converts right of first refusal into an equitable interest and grantee of option has notice of the right of first refusal LEGISLATION CITED : Factors Act 1889 (UK) Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 Bob Jane T-Marts Pty Ltd v The Baptist Union of Victoria [1999] VSC 346 District Bank, Limited v Luigi Grill, Limited and Others [1943] 1 Ch 78 Doe d Meyrick v Meyrick [1833] 2 LJ Ex 259; (1833) 1 Cr & M 820 Forder and Others v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486; (2001) 10 BPR 18,615 Goldmaster Homes P/L & Anor v Johnson & Ors [2004] NSWCA 144 H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 Helby v Matthews and Others [1895] AC 471 In Re Pope; Ex parte Dicksee [1908] 2 KB 169 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140 Jonns and Another v Tan and Others [1999] NSWSC 648; (1999) 9 BPR 17,113 Kuper & Kuper v Keywest Constructions Pty Limited and Another (1990) 3 WAR 419 CASES CITED : Laybutt v Amoco Australia Pty Limited (1974) 132 CLR 57 Mackay and Another v Wilson and Another (1947) 47 SR (NSW) 315 Maggbury Pty Limited and Another v Hafele Australia Pty Limited and Another [2001] HCA 70; (2001) 210 CLR 181 Melacare Industries of Australia Pty Ltd v Daley Investments Pty Ltd (1995) 9 BPR 17,079 Pata Nominees Pty Ltd and Another v Durnsford Pty Ltd and Others [1988] WAR 365 Perri and Another v Coolangatta Investments Proprietary Limited (1982) 149 CLR 537 Pritchard v Briggs and Others [1980] Ch 338 Re Henderson's Caveat [1998] 1 QdR 632 Robinson v Becata Pty Limited [2004] NSWSC 310 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 Ruthol Pty Ltd v Mills [2003] NSWCA 56; (2003) 11 BPR 20,793 Sterns Trading Pty Limited v Shteinman & Ors (1988) NSW ConvR 55-414 Tiffany Investments Ltd and Another v Bircham & Co Nominees (No 2) Limited and Others [2003] EWCA Civ 1759 Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321 Walker Corporation Pty Ltd v W R Pateman Pty Ltd (1990) 20 NSWLR 624 Witham v Witham [2000] WASC 236 Anthony Sahade - Plaintiff BP Australia Pty Limited - First Defendant PARTIES : F Cantoni & Son Pty Limited - Second Defendant Parkview Sydney Developments Pty Limited - Third Defendant Davids Group Pty Limited - Fourth Defendant FILE NUMBER(S) : SC 6422/03 M Sahade - Plaintiff COUNSEL : TF Bathurst QC; SA Goodman - First Defendant GM McGrath - Second Defendant RM Smith SC; LV Gyles - Third & Fourth Defendants Comino Prassas - Plaintiff SOLICITORS : Clayton Utz - First Defendant Stojanovic Solicitors - Second Defendant Goldbergs - Third & Fourth Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J 28 JUNE 2004 6422/03 ANTHONY SAHADE v BP AUSTRALIA PTY LIMITED & ORS JUDGMENT 1 HIS HONOUR: This case concerns whether a right of first refusal to purchase land has been effectively exercised. Facts 2 The second defendant, F Cantoni & Son Pty Limited ("Cantoni") is the owner of land located at 759-777 New South Head Road, Rose Bay. Cantoni has leased the land to the first defendant, BP Australia Pty Limited ("BP") for a period expiring in October 2004. 3 Clause 11.1 of the lease confers on BP a right of first refusal, in the following terms: "The Lessor covenants with the Lessee that should the Lessor at any time during the occupation of the premises by the Lessee … receive an offer to purchase the demised premises … and the Lessor desires to accept such offer; or should the Lessor during any such time make an offer to sell the demised premises … the Lessor shall give the Lessee notice in writing of such offer including without limiting the generality of the foregoing the names and addresses of prospective purchasers. The Lessee shall have the first option to purchase the premises which are the subject of the offer by giving written notice to the Lessor of its intention to purchase the said premises at the same price and on the same terms of any such offer, such notice to be given by the Lessee to the Lessor within twenty one (21) days of receipt by the Lessee of notice of such offer." 4 On 13 November 2003 the solicitor for Cantoni, Mr Stojanovic, wrote to Mr Russell, of Clayton Utz, the solicitor for BP, saying: "… my client is currently negotiating the sale of the subject property to another party. Clause 11 of the Lease reserves to BP a "right of first refusal" and under the terms of clause 11, notice is required to be given to BP in relation to any proposed sale. The documents relating to the proposed sale are almost complete and I will be in a position to give Notice to BP of the proposed sale within the next few days. Please obtain instructions as to whether you have instructions to accept service of the Notice under clause 11 of the Lease …" 5 On 24 November 2003 Cantoni (therein called "the Grantor") entered a Deed of Option with the third defendant, Parkview Sydney Developments Pty Ltd ("Parkview"), referred to in that Deed as "the Grantee". I will refer to that Deed as "the Parkview Option Deed". 6 The operative terms of the Parkview Option Deed were: "1. Subject to clause 1A in consideration of the sum referred to in Item 5 ("the Option Fee") hereby paid by the Grantee to the Grantor, the Grantor hereby grants to the Grantee or its nominee an option to purchase the land for the consideration set out in Item 6 and upon and subject to the terms and conditions as contained in the form of Contract for Sale of Land annexed hereto and marked with the letter "A" ("the Contract"). 1A. The option to purchase the land is subject to the right of first refusal reserved to BP Australia Limited ("BP") under a Lease held by BP in relation to the land. In the event that BP exercises its right of first refusal then the option granted herein shall be terminated and be at an end. If the option granted herein is terminated as aforesaid then the Option Fee paid by the Grantee shall be refunded forthwith, and neither party shall be liable to the other for any damages, costs or expenses. It is further agreed that the Option Fee paid herein shall be paid to the Grantor's solicitor who shall hold the same in trust for the period reserved to BP within which it may exercise its right of first refusal. The Option Fee shall be accounted to:- (a) The Grantor if BP does not exercise its right of first refusal; or (b) the Grantee if BP does exercise its right of first refusal. 2. If the Option hereby granted is not validly exercised, then the Grantee acknowledges that the Option Fee paid shall be and become the absolute property of the Grantor. If the Option hereby granted is validly exercised then the Option Fee paid shall form part of the purchase price of the land pursuant to the Contract. 3. (a) This Option must be exercised between the dates specified in Item 7 of the schedule … (b) This Option may not be exercised by the Grantee until 43 days have expired from the date hereof. 4. (a) This Option shall be exercised by the Grantee or Grantee's solicitors set out in Item 9 of the Schedule giving to the Grantor or Grantor's Solicitors as set out in Item 8 of the Schedule notice in writing in the form annexed hereto and marked with the letter "B", duly executed, Notice of exercise of Option and such notice, addressed to the Grantor, shall be served on the Grantor as set out in Item 2 of the Schedule and such notice shall be accompanied by: (i) a copy of the Contract of Sale of Land such Contract duly executed by the Grantee in the form of the Contract annexed hereto and marked with the letter "A" …; and (ii) a cheque in favour of the Grantor being the deposit due under the Contract less the Option Fee. (b) Upon the happening of the event specified as above, a binding Contract shall be deemed to exist between the Grantor and the Grantee for the purchase of the Land upon the terms and conditions set out in the Contract and the date of the Contract for Sale to be included in such Contract for Sale shall be the date of exercise of this Option." Item 5 of the Schedule to the Parkview Option Deed identified the Option Fee as $170,000. Item 6 of that Schedule identified the purchase price as $16.3m. Item 7 of the Schedule identified the Option Period as "at any time after the expiry of 42 days from the date hereof, but on or before 5pm on 26 August 2004." 7 Annexure "A" to the Parkview Option Deed was a Contract for Sale of Land, where the space shown for the name of the purchaser and purchaser's solicitor were each blank, but which was otherwise ready for execution. The contract annexed the covenants contained in the lease between Cantoni and BP, including Clause 11 of that lease. 8 On 24 November 2003 Mr Stojanovic wrote to Clayton Utz, saying: "I refer to my fax dated 13 November 2003 and confirm your advice that you have instructions to accept service of any notice to be given under clause 11 of the Lease. I now enclose copy of Deed of Option dated 24 November 2003 which sets out the terms of an offer to purchase which my client desires to accept. It is noted that under clause 11.1 of the Lease, your client has the first option to purchase the property, the subject of the offer by giving written notice to the Lessor (my client) of its intention to purchase the said property at the same price and on the same terms as the offer, such notice to be given by your client to my client within 21 days of the notice of such offer. For the purpose of any notice which your client wishes to give, I advise that I have instructions to accept service on behalf of my client." 9 By this time, BP had decided that it did not wish to acquire the land for its own use. However, BP had been in discussion with the plaintiff in this case, Mr Anthony Sahade. Mr Sahade and BP had agreed upon an arrangement whereby BP would make the practical benefit of its right of first refusal available to Mr Sahade. The means whereby they had agreed to do this was that BP would exercise the right of first refusal, enter into an Option Deed with Cantoni on the same terms as the Parkview Option Deed (other than Clause 1A), pay the $170,000 Option Fee (after Mr Sahade had put BP in funds to enable it to do so), and then nominate Mr Sahade or his nominee as the purchaser of the property. 10 On 11 December 2003 Clayton Utz wrote to Mr Stojanovic saying: "F. Cantoni & Son Pty Limited and BP Australia Pty Limited Property: 759 – 777 New South Head Road, Rose Bay I refer to your letter of 24 November 2003 and our telephone discussion of 9 December 2003. I hereby advise that BP Australia Pty Limited accepts the offer to purchase the property on the terms and conditions of the Deed of Option dated 24 November 2003." 11 The solicitors for Parkview were sent a copy of that letter and on 11 December 2003 wrote to Mr Stojanovic contesting that BP had any right to exercise at that time. Parkview's solicitors contended that BP's right of first refusal would only become exercisable when Parkview called for a contract to purchase the property, if and when Parkview exercised the option to purchase. 12 On 9 March 2004 the solicitors for Parkview sent to Mr Stojanovic: (a) a document whereby Parkview nominated Davids Group Pty Ltd ("Davids") as its nominee to exercise the option to purchase, (b) a Notice Exercising Option executed by Davids, (c) a cheque for the balance of the deposit, and (d) a Contract for Sale of Land, in the same form as that annexed to the Parkview Option Deed, executed by Davids. 13 On 17 March 2004 Mr Stojanovic wrote to Clayton Utz, informing them that on 9 March 2004 he had received the documents mentioned above from Parkview, and saying: "I now enclose by way of service a copy of the contract executed by the purchaser. If you are of the view that your client has certain rights under the Lease, your client has a period of 21 days from the date hereof to exercise such rights." BP did nothing within that 21-day period. 14 On 14 May 2004 Clayton Utz wrote to Mr Stojanovic, saying: "Pursuant to the Deed of Option between BP and Cantoni dated 11 December 2003, which Deed of Option is in the same terms and conditions as the Deed of Option between Cantoni and Parkview Sydney Developments Pty Limited dated 24 November 2003 (the "Parkview Option Deed" ) (with the exception of clause 1A of the Parkview Option Deed), BP hereby nominates Mr Anthony Sahade as purchaser of the Land." That letter enclosed: (a) a form executed by BP nominating Mr Sahade, (b) a Notice Exercising Option executed by Mr Sahade, (c) a Contract for Sale of Land executed by Mr Sahade as purchaser, (d) a cheque for $170,000 drawn on the Clayton Utz trust account, for the Option Fee, and (e) cheques totalling the difference between the deposit payable under the contract, and the Option Fee. The Issues for Trial 15 These proceedings were commenced on 22 December 2003. In them Mr Sahade seeks a determination that BP has effectively exercised the right of first refusal contained in Clause 11.1 of the Lease, and that Mr Sahade is entitled to an option on the same terms (other than Clause 1A) as the Parkview Option Deed. The hearing has been expedited. 16 On 16 April 2004 an order was made under Supreme Court Rules 1970 Part 31, rule 1 that, "the issues in the proceedings except for the question of damages be determined separately." It emerged at the start of the hearing before me that the legal representatives of different parties had different views about what this order meant. Following some discussions, there was a partial settlement whereby various claims and cross-claims were dismissed or discontinued. The defendants who remained in the litigation were BP, and (in the same interest and with common representation) Parkview and Davids. I will refer to Parkview and Davids together as "the Parkview defendants". Cantoni agreed to abide by the order of the Court, and was excused. 17 Following the partial settlement I ordered that the following questions be determined as separate questions: (1) whether on the true construction of Clause 11 of the Memorandum of Lease between the first defendant ("BP") and the second defendant ("Cantoni"), BP is entitled to require Cantoni to grant it an option to purchase the premises the subject of the lease, on the same terms as the Option Deed entered into between Cantoni and the third defendant ("Parkview") but excluding Clause 1A of the latter deed. (2) If BP was entitled to require Cantoni to grant it an option deed was the letter from Clayton Utz of 11 December 2003 sufficient notice of the exercise by BP of its rights under Clause 11 of the Lease? (3) If the questions in paragraphs (1) and (2) are answered in the affirmative, what are the respective priorities of the relevant interests (if any) of BP, Parkview, and Davids Group Pty Limited in the land the subject of the lease. (4) Whether the letter of 11 December 2003 amounted to an exercise of the right of first refusal by way of an unconditional offer to purchase the property. Question 1 – Whether on the true construction of Clause 11 BP is entitled to require Cantoni to grant it an option to purchase the premises on the same terms as the Parkview Option Deed but excluding Clause 1A 18 Clause 11.1 of the Lease starts by stating the circumstances in which it comes into operation. The first is that the events should arise during the occupation of the premises by the Lessee. It is undisputed that that requirement is satisfied. The second is that either: "… the Lessor … receive an offer to purchase the demised premises … and the Lessor desires to accept such offer"; or "… the Lessor … make an offer to sell the demised premises." It is common ground between all the parties that, by the time of entering the Parkview Option Deed, this triggering condition for Clause 11.1 was satisfied. They do not agree, however, about why it is satisfied. Mr Sahade contends that the Parkview Option Deed constituted both "an offer to purchase the demised premises" by Parkview, and "an offer to sell the demised premises" by Cantoni. Both BP and the Parkview defendants say it was only of the latter kind. When there is agreement that, by the time of entering the Parkview Option Deed, Clause 11.1 had been triggered, it is not necessary to resolve that disagreement. 19 Once the triggering event under Clause 11.1 has happened, Clause 11.1 obliges the Lessor to give the Lessee notice in writing of the offer which was made. It is common ground that Mr Stojanovic's letter of 24 November 2003 (para [8] above) was effective to do that. 20 Clause 11.1 then states the manner by which the Lessee may exercise its rights under the clause, namely, "… by giving written notice to the Lessor of its intention to purchase the said premises at the same price and on the same terms of any such offer, such notice to be given by the Lessee to the Lessor within twenty one (21) days of receipt by the Lessee of notice of such offer." It is common ground that in the phrase just quoted the words "such offer" refer to whichever of the two types of offer, to purchase or to sell, might apply in the particular case. There is agreement between the parties that the Parkview Option Deed constituted such an offer, even though there is the difference of view which I have earlier mentioned about whether it is the first type of offer which triggers Clause 11.1, or the second type of offer which triggers Clause 11.1. 21 Counsel for BP submits that any construction of a commercial contract ought be one which gives the document the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to all the parties in the situation that they were in at the time of the contract: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-3; Maggbury Pty Limited and Another v Hafele Australia Pty Limited and Another [2001] HCA 70; (2001) 210 CLR 181 at 188. 22 In Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 at 109, Gibbs J said: "… the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious, or the most grammatically accurate", to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally … Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 514, that the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance." 23 The majority of the High Court (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436 at [39] said of the speech of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society that it was unnecessary to determine whether his Lordship: "took a broader view of the admissible "background" than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court. Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa , should continue to follow Codelfa ." The present is not a case where reliance is placed upon admissible "background" . 24 Mr Sahade and BP submit that the commercial purpose of Clause 11.1 was that, if the Lessor was prepared to part with the leased premises on particular terms, it should give the Lessee the opportunity of purchasing the property on those terms before it parted with the property on those terms to someone else. They point out that there are significant differences between the terms on which Cantoni would part with the land pursuant to the Parkview Option Deed, and the terms on which it would part with the land under the contract which is annexed to the Parkview Option Deed. These included: (a) Under the Parkview Option Deed it was possible for the grantee to nominate someone else to obtain the benefit of the option, while there was no right of nomination under the contract for sale. (b) The Parkview Option Deed could not be exercised until 43 days had expired from its date of entry, and could be exercised any time up to 5pm on 26 August 2004. The contract annexed to the Deed of Option had a clause requiring completion to occur on the forty-second day after the contract was entered. Thus, a grantee of the Parkview Option Deed who delayed exercising the option for as long as possible might not be required to complete purchase of the land until 7 October 2004. (c) The Parkview Option Deed required a payment of an Option Fee of $170,000, which, if the option was exercised, would be credited towards the deposit. The contract for sale had a provision, in special condition 16, requiring a deposit of $1.63m, of which half was payable on the date of entry of the contract for sale, and the balance payable on the earlier of completion, and two days after the date of any default by the purchaser of a kind which entitles the vendor to terminate the contract. (d) The Parkview Option Deed had a strictly prescribed regime for exercise of the option which had no analogue in the contract for sale. 25 I accept that these differences between the terms on which the property would be available to a purchaser pursuant to the Parkview Option Deed, and the terms on which the property would be available to someone who signed and exchanged the contract for sale which is annexed to the Parkview Option Deed, are commercially significant ones. 26 The Parkview defendants submit that BP's letter of 11 December 2003 is not one whereby BP gave "written notice … of its intention to purchase", within in the meaning of Clause 11.1. Rather, those defendants submit, that letter gave notice of BP's desire to have an option on the same terms as the Parkview Option Deed. There is, those defendants submit, the world of difference between an intention to purchase particular property (which, if carried through, would result in the property actually being acquired by the person who had the intention), and giving notice of an intention to acquire an option to purchase the property (which, if carried through, might never result in the person who had the intention actually acquiring the property). 27 It is convenient to consider here the construction of the letter of 11 December 2003 (para [10] above). It is a notice passing between two people already in contractual relations (namely, BP and Cantoni, who are in the contractual relationship established by the Lease). Such notices are construed by considering what message they convey, clearly and distinctly, to a reasonable reader in the position of the recipient of the notice, where being "in the position of the recipient" involves having the knowledge of the circumstances surrounding the transaction in which the notice is given which the recipient has or ought to have (Robinson v Becata Pty Limited [2004] NSWSC 310 and cases therein referred to.) 28 Counsel for BP submitted that I could take into account, in construing that letter, the terms of the agreement between Mr Sahade and BP, which made quite clear that BP and Mr Sahade had agreed that BP was to, after exercising the right in Clause 11, enter into an option deed with Cantoni on the terms and conditions of the Parkview Option Deed other than Clause 1A. I do not accept that I can take that agreement between Mr Sahade and BP into account in construing the letter of 11 December 2003. While that agreement makes clear what the subjective intention of BP was in writing the letter of 11 December 2003, it is not the subjective intention of BP which matters. The terms of the agreement between BP and Mr Sahade were not known to Cantoni, and there is no reason to hold that they ought to have been known to Cantoni. Thus, a reasonable recipient of the letter in the position of Cantoni would not have taken that agreement into account in deciding what the letter of 11 December 2003 meant. 29 In my view, however, the letter of 11 December 2003 on its face means that BP notifies its intention to purchase on the terms of the Parkview Option Deed. I do not accept the submission of Mr Sahade that it can be construed as a notification of an intention to purchase on the terms of the contract which is annexed to the Parkview Option Deed. Its words do not allow that possibility. 30 It is indisputable that in some contexts the distinction which the Parkview defendants draw between an intention to purchase property, and an intention to acquire an option to purchase property, is a real one. In Helby v Matthews and Others [1895] AC 471 the House of Lords held that the expression "a person having agreed to buy goods" in section 9 of the Factors Act 1889 (UK) meant a person who had bound himself by agreement to buy, and did not include a person who had an option to buy under a hire-purchase agreement. However, even in that case, it was recognised that there could be a difference between how the words were regarded "in their strict legal sense" and how they were regarded "in popular language" – Lord Herschell LC said, at 477: "It was said in the Court of Appeal that there was an agreement by the appellant to sell, and that an agreement to sell connotes an agreement to buy. This is undoubtedly true if the words "agreement to sell" be used in their strict legal sense; but when a person has, for valuable consideration, bound himself to sell to another on certain terms, if the other chooses to avail himself of the binding offer, he may, in popular language, be said to have agreed to sell, though an agreement to sell in this sense, which is in truth merely an offer which cannot be withdrawn, certainly does not connote an agreement to buy, and it is only in this sense that there can be said to have been an agreement to sell in the present case." Similarly, Lord Watson, at 480 said: "Whilst, in popular language, the appellant's obligation might be described as an agreement to sell, it is in law nothing more than a binding offer to sell. There can, in such a case, be no agreement to buy, within the meaning of the Act of 1889, until the purchaser has exercised the option given him in terms of the agreement." 31 The word "purchase" has a range of meanings. The Macquarie Dictionary, 2nd edition gives meanings, when the word is used as a verb, which include: "to acquire by the payment of money or its equivalent; buy … to acquire, as an estate in lands, otherwise than by inheritance … to procure, acquire or obtain." The Shorter Oxford English Dictionary, 3rd edition notes meanings of "purchase" when used as a transitive verb including: "To procure for oneself, acquire, get possession of; to gain … To acquire (property, esp land) otherwise than by inheritance or descent … To acquire by the payment of money or its equivalent; to buy." It notes the origin of the word as being old French, pourchacier , meaning "seek to obtain, procure" . I mention these dictionary definitions only for the purpose of showing how wide a range of possible meanings the word can have. 32 Even in a legal context, the word "purchase" can have a range of meanings. A devise of lands "purchased" can include lands acquired by exchange for other land: Doe d Meyrick v Meyrick [1833] 2 LJ Ex 259; (1833) 1 Cr & M 820 at 826-7. Sometimes a "purchaser" can be someone who has acquired a right through compromising a claim: In Re Pope; Ex parte Dicksee [1908] 2 KB 169. In conveyancing, "purchased" sometimes has "the technical legal meaning of acquisition otherwise than by descent or escheat" (per Denning LJ, H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 at 170). Sometimes a "purchaser" can include a mortgagee: District Bank, Limited v Luigi Grill, Limited and Others [1943] 1 Ch 78 at 80. 33 In deciding the present question, the expression "intention to purchase" should not be looked at in isolation. What Clause 11.1 requires a notice to inform the Lessor of, is the Lessee's "intention to purchase the said premises at the same price and on the same terms of any such offer". Considering the Parkview Option Deed only as an offer to sell the premises, when a lessee notifies its intention to purchase the premises at the same price and on the same terms as that offer, it is only an intention to purchase on the terms of the Option Deed which meets the language of the Clause. The contention of the Parkview defendants that an effective exercise of the right would require BP to notify its intention to purchase the premises on the terms of the contract which is annexed to the Parkview Option Deed would result in BP not notifying an intention to purchase "at the same price and on the same terms" as the Parkview Option Deed. The significant differences between the terms on which the land could be acquired under the Parkview Option Deed, and the terms on which it could be acquired under the contract annexed to that deed, inevitably lead to that conclusion. Further, it is only by construing Clause 11.1 in the way for which Mr Sahade and BP contend that the commercial objective of the clause can be achieved. I accept the submission of Mr Sahade and BP about what is the commercial objective of the clause. 34 For these reasons, I do not accept the submissions of the Parkview defendants concerning whether the 11 December 2003 letter was an effective exercise of the rights under Clause 11. 35 No submission was addressed to me that, if I rejected the submission of the Parkview defendants on this topic, I should come to any other conclusion than that BP was entitled to require Cantoni to grant it an option to purchase the premises on the terms of the Parkview Option Deed, but excluding Clause 1A. Hence I answer Question 1 "Yes". Question 2 – If BP was entitled to require Cantoni to grant it an Option Deed was the letter from Clayton Utz of 11 December 2003 sufficient notice of the exercise by BP of its rights under Clause 11 of the lease? 36 This question was included in the order for separate determination of questions at a time when it seemed that the second defendant might contend for a negative answer. Now that the second defendant has been excused from the litigation, there is no live issue concerning it between the remaining parties. They are agreed that the answer should be in the affirmative. Question 3 – If the answers to questions 1 and 2 are in the affirmative, what are the relative priorities of the interests of BP, Parkview and Davids in the land 37 It is common ground that the Parkview Option Deed created an option in Parkview to purchase the land. It is also common ground that an option to purchase land creates an equitable interest in that land, even before the option is exercised: Laybutt v Amoco Australia Pty Limited (1974) 132 CLR 57 at 75-76; Melacare Industries of Australia Pty Ltd v Daley Investments Pty Ltd (1995) 9 BPR 17,079 at 17,091-2; Ruthol Pty Ltd v Mills [2003] NSWCA 56; (2003) 11 BPR 20,793 at [83]. That the option created an equitable interest even before it was exercised is consistent with the decisions which hold that a contract, where the obligation to convey is subject to a condition, creates an equitable interest even before that condition has been performed: Kuper & Kuper v Keywest Constructions Pty Limited and Another (1990) 3 WAR 419; Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140; Re Henderson's Caveat [1998] 1 QdR 632; Forder and Others v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486; (2001) 10 BPR 18,615. 38 I accept the submission of the Parkview defendants that Clause 1A of the Parkview Option Deed was a condition subsequent, rather than a condition precedent to the formation of a binding contract by the Parkview Option Deed: Perri and Another v Coolangatta Investments Proprietary Limited (1982) 149 CLR 537 at 541-542. I also accept the submission of the Parkview defendants that the equitable interest which Parkview acquired on entering the Parkview Option Deed was subject to defeasance if BP exercised its rights under Clause 11 of the Lease. 39 In circumstances where I have held that BP has exercised its rights under Clause 11 of the Lease, Clause 1A of the Parkview Option Deed has the effect that the equitable right of Parkview came to an end when BP exercised its right of first refusal on 11 December 2003. That is a sufficient reason why, as at today, BP's rights arising under Clause 11 of the Lease will be given effect to, and those which the Parkview defendants had arsing under the Parkview Option Deed will not be given effect to. In that sense, the rights of BP have priority over those of the Parkview defendants. 40 An alternative argument was put concerning this question of priority. I accept that the rights of BP under Clause 11 of the Lease were, at the time of grant, rights in the nature of a right of pre-emption. 41 Questions of what rights arise from contractual arrangements which might be classified as "options" or "rights of pre-emption" must pay close attention to the actual wording of the document by which those rights are created: Pata Nominees Pty Ltd and Another v Durnsford Pty Ltd and Others [1988] WAR 365 at 372; Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 at 522, 529; Witham v Witham [2000] WASC 236 at [99]; Goldmaster Homes P/L & Anor v Johnson & Ors [2004] NSWCA 144. Clause 11 of the Lease did not, at the time of grant, create an equitable interest in the land: Mackay and Another v Wilson and Another (1947) 47 SR (NSW) 315 at 325. In Pritchard v Briggs and Others [1980] Ch 338 the majority (Templeman and Stephenson LJJ) held that, once the conditions on which the holder of a right of pre-emption was entitled to acquire land had arisen, the right of the holder of the right of pre-emption became an interest in the land. Though Pritchard v Briggs and Others [1980] Ch 338 was not followed in this respect by Brownie J in Walker Corporation Pty Ltd v W R Pateman Pty Ltd (1990) 20 NSWLR 624, it has been followed in this State in judgments delivered on final hearings by Kearney J in Sterns Trading Pty Limited v Shteinman & Ors (1988) NSW ConvR ¶55-414 at 57,791-2, by Santow J in Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321 at 341-3, and by Young J in Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 at 526. In Pata Nominees Pty Ltd and Another v Durnsford Pty Ltd and Others [1988] WAR 365 Burt CJ gave tentative, and obiter, approval to Pritchard v Briggs and Others [1980] Ch 338, at 372: "I can understand that a right of pre-emption, so called, upon its proper construction may be a conditional option so that when the condition is satisfied there is a standing and by that time an unconditional offer to sell so that "the holder of the right of pre-emption would be entitled to buy and therefore entitled to an equitable interest". But for that to happen it would, I think, be necessary, as was the case in Pritchard v Briggs … that the price and other terms necessary to establish a completed contract to buy and sell be agreed upon and expressed within the provisions conferring the pre-emptive right. If that be the case, then it may be, the condition being satisfied, that the holder of the pre-emptive right could accept what has then become the standing offer and so conclude an agreement which could be specifically enforced." (Emphasis added) 42 In other judgments given to decide whether interlocutory relief should be granted, Pritchard v Briggs and Others [1980] Ch 338 has been regarded as providing a basis for an argument that there is a serious question to be tried concerning whether a right of pre-emption, when the conditions for its exercise are satisfied, gives rise to an equitable interest, and no reason has been given in those cases to doubt the correctness of Pritchard. Such cases are the decisions of Santow J in Jonns and Another v Tan and Others [1999] NSWSC 648; (1999) 9 BPR 17,113 at [8] and of Warren J in Bob Jane T-Marts Pty Ltd v The Baptist Union of Victoria [1999] VSC 346 at [19]. Pritchard v Briggs and Others [1980] Ch 338 continues to be applied in the English Court of Appeal: Tiffany Investments Ltd and Another v Bircham & Co Nominees (No 2) Limited and Others [2003] EWCA Civ 1759 at [14] –[15], [36]. 43 In my view Pritchard v Briggs and Others [1980] Ch 338 is right in deciding that a right of first refusal can transmute from a merely contractual right to a right which confers an equitable interest in land, when the conditions for exercise of the right of first refusal have all been satisfied. An equitable interest arises in land which is the subject of an option to purchase because the grantor of the option can, in at least some circumstances, be deprived of that land without there being any further action or decision on his part. In that situation, he cannot in conscience regard the land as being completely his own. When the conditions for exercise of a right of pre-emption have arisen, the grantor of that right of pre-emption can likewise be deprived of his land without any further action or decision on his part. Further, such a situation is one where specific performance is capable of being awarded, to require the grantor of the right of first refusal to perform his agreement. While the availability of specific performance might not be the only test for whether one person has an equitable interest in land of another, it provides one test for when such an equitable interest exits. 44 I accept that, when the Parkview Option Deed was entered, that action itself satisfied the condition for the operation of the right of pre-emption under Clause 11.1 without any further action on the part of the grantor being required. Thus, when the Parkview Option Deed was entered, BP acquired an equitable interest in the land. 45 It is clear, and undisputed, that at the time Parkview entered the Parkview Option Deed, it had notice of BP's rights under Clause 11.1 of the Lease. That notice arose from the terms of Clause 1A of the Parkview Option Deed, and from the inclusion of the full text of Clause 11 in the Lease covenants which were part of the Contract for Sale annexed to the Parkview Option Deed. 46 In Sterns Trading Pty Limited v Shteinman (1988) NSW ConvR ¶55-414 at 57,791-57,792 Kearney J considered a similar fact situation to that now before me. He said: "… although prior to the granting of the option it may be accepted for purposes of argument that the plaintiff's right under the pre-emption clause did not create any equitable interest in the land, at the moment of the grant of option this right was, in my view, transformed from a mere contractual right into a right involving an equitable interest in the land. The event prescribed by cl 28 of the lease for the plaintiff's right to purchase to come into existence is the existence of the lessor's desire to sell the property. Whether it could be said that this desire is shown on the evidence to have been sufficiently evidenced by the oral understanding which existed as early as January 1988, certainly at the moment of such oral understanding being converted into a formal grant of option in February, the nature of the plaintiff's rights changed. In this regard, see the judgment of Lord Justice Stevenson in Briggs v Pritchard [1980] Ch 338 at p 423. The consequence is that in my view the creation simultaneously of equitable interests in favour of the plaintiff and of the second defendant on 18 February 1988 meant that there were competing equities, neither prior in time to the other, but of which the plaintiff's equity is to be preferred as being the better equity, particularly on the basis that the equity of the second defendant was taken with knowledge and notice of the existence of the immediate creation of the plaintiff's equitable interest, by virtue of the granting of the option." That reasoning is directly applicable in the present case. It follows that, from the moment the Parkview Option Deed came into existence, BP's right of pre-emption under Clause 11 of the Lease transmuted into an equitable interest in the land, and furthermore was an equitable interest which had priority over Parkview's rights under the Parkview Option Deed. 47 No submission was put that Davids had any better right than Parkview, in this respect. 48 I conclude that the interest of BP has priority over that of Parkview and Davids. Question 4 – Whether the Letter of 11 December 2003 Amounted to Exercise of the Right of First Refusal By Way of an Unconditional Offer to Purchase the Property 49 This question has already been answered in the negative, at para [27] –[29] above. Further Conduct of these Proceedings 50 I direct the parties to make, within 14 days of the date of handing down these reasons for judgment, an appointment with my Associate for the purpose of bringing in Short Minutes of Order to give effect to these reasons for judgment. At that time I will also hear any argument concerning costs. If the effect of these reasons for judgment is not to completely dispose of the proceedings, the parties should also bring in Short Minutes for directions for the further conduct of the proceedings. ********** Last Modified: 07/02/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.