In brief - Vendor found liable for damages for breaching contract
A recent Queensland Supreme Court decision in Mayfair Property Holdings Pty Limited v Southland Packers Pty Limited  QSC 27
, has made it clear that any right of first refusal (or other pre-emptive rights to purchase a property) contained in a lease will be construed strictly. The right will only be "enlivened" if all provisions of the lease are followed.
Exchanged contract of sale different from contract vendor subsequently offers tenant
Mayfair Property Holdings Pty Limited v Southland Packers Pty Limited
dealt with a matter where Mayfair Property (the plaintiff) had exchanged contracts to acquire a property at Ashmore in Queensland. The contract for sale contained a clause stating that the lease contained a pre-emptive right to purchase the property on the same terms which was in favour of the tenant, BP Australia, and that, if the tenant availed itself of that right, the exchanged contract would come to an end.
After exchange, the vendor (Southland Packers, the defendant) gave notice to the tenant of the terms of the exchanged contract with Mayfair Property.
As a result of negotiations, the tenant was given an offer by Southland Packers to enter into a sale contract on terms which were not the same as the terms of the contract with Mayfair Property.
Further, the offer (by agreement between the tenant and the vendor) was to an associated company of the tenant, BP Refinery, not to BP Australia itself.
BP Refinery exchanged and quickly settled contracts to acquire the property, and Southland Packers terminated the contract with Mayfair Property.
Contract provision, terms and timeframes considered by Court
The Court found that Southland Packers' termination of the contract with Mayfair Property was a breach of that contract.
Relevantly, the Court held that:
- The provision in the contract contemplated an offer strictly in accordance with the lease, which was an offer to BP Australia, not an associated company. There was no nominee provision in the lease pre-emptive rights provision.
- There was a timeframe within which the offer had to be accepted under the clause in the contract, making the contract conditional upon the tenant not exercising its pre-emptive rights.
- This timeframe was not strictly adhered to. Therefore, the offer made by Southland Packers to the tenant was not an offer contemplated by and accepted in accordance with the provisions of the contract.
- The contract entered into with BP Refinery, the entity associated with the tenant, was on materially different terms to those the subject of the contract which Mayfair Property had exchanged. The provisions of the special conditions in the contract between Mayfair and Southland Packers, dealing with the tenant's pre-emptive rights, required the offer to be made on the same terms.
There was a significant number of changes, some of which were fundamental, such as a requirement not to pay a deposit (as the purchaser was a subsidiary of a public company), a shorter settlement time and the deletion of some of the conditions contained in the contract with Mayfair Property.
The Court had no problems in finding that there was no justification for the termination of the contract between Mayfair Property and Southland Packers, and that, as Southland Packers had breached the terms of the contract, Southland Packers was liable for damages.
Specific contract provisions should be complied with strictly
This is yet another example of recent cases in which a court has held that, where strict procedures are set out in documents for the exercise of rights or termination of agreements conferring rights and benefits on parties, strict adherence is required.
The courts are increasingly of the view that parties put in specific provisions for a purpose, and that the courts should do what they can to give business efficacy to and require strict compliance with those requirements.
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