NWA Realty Pty Ltd v Christou

This case concerns a first right of refusal contained in a lease of certain commercial premises in Old Northern Road, Castle Hill. The lease was entered into in 2016 by the plaintiff as lessee and the defendants as lessor. The lease is for a five year term ending on 14 May 2021, with an option to renew for a further five year term. The first right of refusal is contained in cl 14 of the lease. It is in the following terms:

The plaintiff claims that on 23 August 2019 it accepted an offer made by the defendants pursuant to the first right of refusal, such that the defendants became bound to sell the Castle Hill property to the plaintiff on certain terms. By its Summons, filed on 11 September 2019, the plaintiff seeks orders in the nature of specific performance of the alleged agreement for sale.

The Summons was served upon all defendants in accordance with orders made on 11 September 2019 by Robb J. However, the fifth defendant did not appear. The Court was informed that the fifth defendant’s interest in the property had been transferred to the sixth defendant. For convenience, the defendants other than the fifth defendant will henceforth be referred to as “the defendants”.

The defendants deny that they became bound to sell the property to the plaintiff. The defendants accept that on 9 August 2019 they made an offer to the plaintiff pursuant to the first right of refusal. However, the defendants contend that on 19 August 2019 the plaintiff made a counter-offer (involving a lower price and a longer settlement period), and later that day made a statement that amounted to an explicit rejection of the offer. The defendants submit that in these circumstances the offer made pursuant to the first right of refusal was no longer available for acceptance. The defendants therefore contend that the plaintiff’s purported acceptance of the offer on 23 August 2019 was not effective to create a binding agreement for sale of the property.

By early August 2019 the defendants had retained CBRE Pty Ltd (“CBRE”) as agents for the sale of the property. The property was advertised for sale.

On 9 August 2019 (at 10:02am), Mr Darkoh of CBRE sent an email to Messrs Kelly and Dowling, both of whom are directors of the plaintiff, in the following terms:

A form of contract for sale was attached to the email. The contract employed the 2018 edition of the Law Society/Real Estate Institute standard form, supplemented by Special Conditions. It provided for a price of $3 million, a $300,000 deposit payable on the making of the contract, and completion to occur 42 days after the contract date.

Also on 9 August 2019, CBRE sent a letter to Mr Kelly which contained substantially the same terms as the email of the same date, with the addition of the following:

Later on 9 August 2019 (at 2:58pm), Mr Dowling sent an email to Mr Darkoh in the following terms:

On 12 August 2019, Mr Mirzaian sent an email to Mr Dowling which included the following:

Mr Dowling and Mr Mirzaian had a telephone conversation in the afternoon of 12 August 2019. According to Mr Dowling, the conversation was to the following effect:

According to Mr Mirzaian the conversation that occurred on 12 August 2019 was to the following effect:

Mr Dowling and Mr Mirzaian exchanged further emails during the afternoon of 13 August 2019. Mr Dowling’s email (sent at 4:26pm) was in the following terms:

Mr Mirzaian’s email (sent at 6:28pm) was in the following terms:

Mr Mirzaian deposed that shortly prior to sending his email he had a telephone conversation with Mr Dowling to the following effect:

Mr Dowling denied having said the words “if another buyer is happy to pay $3,000,000 then we will let it go”. He recalls that he said words to the effect:

Mr Dowling further states that in a number of subsequent conversations Mr Mirzaian said to him words to the following effect:

On 14 August 2019 (at 8:30am), Mr Dowling sent an email to Mr Mirzaian in the following terms:

On 19 August 2019 (at 10:48am), Mr Dowling sent an email to Mr Mirzaian in the following terms:

This is the email which the defendants assert amounted to a counter-offer which had the effect that the offer pursuant to the first right of refusal was no longer available for acceptance.

Mr Mirzaian sent an email in response on 19 August 2019 (at 2:12pm) in the following terms:

Mr Dowling deposed that after receiving Mr Mirzaian’s email on 19 August 2019 he had a conversation with him which included the following:

According to Mr Mirzaian, the conversation on 19 August 2019 was to the following effect:

Mr Dowling deposed that he spoke to Mr Mirzaian again on 20 August 2019. He says that there was a conversation to the following effect:

Mr Mirzaian denies saying the words attributed to him, in particular the words “They are not critical aspects”. He accepted in cross-examination, however, that he had said words to the effect of “you can handwrite your changes on the document”. Mr Mirzaian deposed that he had a conversation with Mr Dowling on 20 August 2019 to the following effect:

Mr Dowling accepts that a conversation occurred to that effect, but says that the following was also said:

On 21 August 2019 a solicitor retained by the plaintiff, Mr Barros, sent a letter to the defendants’ solicitors (D’Agostino Solicitors) in the following terms:

The plaintiff, through Messrs Dowling and Kelly, made arrangements to accept the offer made pursuant to the first right of refusal. At about 2:10pm on 23 August 2019 they arrived at the office of D’Agostino Solicitors. That firm was named as the vendor’s solicitor on the form of contract that had been provided to the plaintiff on 9 August 2019. Mr Kelly announced to the receptionist that they were there to exchange contracts. Messrs Dowling and Kelly had in their possession a cheque in the sum of $300,000, and a contract in the form that had been provided by the defendants on 9 August 2019. Messrs Dowling and Kelly had two signed versions of the front page of the contract. The first named the plaintiff as the purchaser. The second named another entity as the purchaser (Daithi Pty Ltd). That entity, which is apparently the trustee of a unit trust, was the plaintiff’s “preferred purchasing entity”. It seems that a request was to be made for the contract to be entered into with that entity, failing which the plaintiff would itself enter into the contract.

However, not long after they had arrived at the office, Mr Barros telephoned Mr Dowling and informed him that a letter had been received which stated that the defendants were not going to exchange contracts. Shortly thereafter, a female person at the office spoke to Mr Kelly. Mr Kelly deposed that the person (whom he believed was a solicitor) said words to the following effect:

A letter from D’Agostino Solicitors to R E Barros & Company was then handed by the person to Mr Kelly. The letter included the following:

The stance taken by the defendants was challenged by the plaintiff. On 27 August 2019 Burridge & Legg Solicitors sent a letter to D’Agostino Solicitors in the following terms:

No exchange of contracts occurred. As noted earlier, the proceedings were commenced on 11 September 2019.

It will be apparent from the narrative of events set out above that the recollections of Messrs Dowling and Mirzaian differ in a number of respects. That is not surprising, even though the conversations took place recently. Only one of the conversations appears to be the subject of a contemporaneously made note, that being the note made by Mr Mirzaian at about 6:30pm on 13 August 2019. Otherwise, Messrs Dowling and Mirzaian had to rely upon their respective memories, aided no doubt by the terms of the emails that passed between them.

Mr Dowling and Mr Mirzaian were each cross-examined. I formed a generally favourable impression of Mr Dowling as a witness. He seemed to me to be attempting to give his evidence as accurately as his memory would allow, and he was prepared to make concessions in relation to the accuracy of certain parts of Mr Mirzaian’s account. I accept Mr Dowling as an honest witness whose testimony is essentially an accurate and reliable account of his dealings with Mr Mirzaian.

I formed a less favourable impression of Mr Mirzaian. Whilst I regard Mr Mirzaian, overall, as a satisfactory witness, some aspects of his evidence cause me to be more hesitant in accepting the accuracy and reliability of his account. First, Mr Mirzaian appeared rather defensive and at pains to adhere to the content of his affidavit, particularly when challenged about paragraph 15 of his affidavit and his understanding of what constituted an offer. Further, Mr Mirzaian seemed reluctant to concede the possibility that his recollection of the words used in conversations might not be correct (see at Transcript 43.40). Finally, his unqualified denial (at Transcript 44.10) that he was intending in his email of 19 August 2019 to communicate that the offer made on 9 August 2019 remained open for acceptance, struck me as implausible; and his next answer (at Transcript 44.15) failed to adequately explain his position.

In relation to the various conversations that are not the subject of a contemporaneous written record, I therefore regard the accounts given by Mr Dowling to be more likely to be accurate than those given by Mr Mirzaian, recognising of course that the accounts are attempts to reconstruct the effect of conversations, largely from memory.

As it happens, only one of these conversations is of central significance. That is the conversation on 19 August 2019 which occurred after receipt of Mr Mirzaian’s email sent at 2:12pm. I accept Mr Dowling’s evidence about the terms of that conversation. In particular, I accept that a conversation occurred in which Mr Dowling enquired whether Mr Mirzaian had actually passed on his offer of $2.65 million, to which Mr Mirzaian responded that he did not consider Mr Dowling’s email an offer, but that presenting a signed contract and a 10% deposit cheque would be an offer. I note that in the course of a thorough cross-examination, it was not put to Mr Dowling that in this conversation Mr Mirzaian did not say the words Mr Dowling attributed to him. I am also prepared to accept Mr Dowling’s denial that he said “We won’t be paying $3,000,000.00 for the property”.

The critical issue is whether the offer made pursuant to the first right of refusal was not available for acceptance by the plaintiff on 23 August 2019 because the plaintiff had earlier rejected the offer. I understood the case as ultimately advanced on behalf of the defendants to be that the offer was rejected on 19 August 2019 by:

My finding that Mr Dowling did not say, in the conversation on 19 August 2019, that the plaintiff would not be paying $3 million for the property, means that it remains necessary only to consider the effect of Mr Dowling’s email of 19 August 2019.

It is a basic principle of contract law that an offer, open for acceptance, will be brought to an end if it is rejected by the offeree. Further, it is clear that the making by the offeree of a counter-offer will operate as a rejection of the offer (see Hyde v Wrench (1840) 3 Beav 334 at 337; Baker v Taylor (1906) 6 SR (NSW) 500 at 511; J D Heydon, Heydon on Contract (Lawbook Co., 2019) at [2.840] where the learned author refers to a counter-offer “strictly so called”).

The question whether the words of an offeree in respect of an offer amount to an acceptance or a rejection (including by means of a counter-offer) involves a question of construction (see Quadling v Robinson (1976) 137 CLR 192 at 201; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [154]). It is thus necessary to consider the words, viewed in the context and circumstances in which they are spoken or written, and determine what, objectively, the offeror ought to have understood the words to mean (see, for example, Stevenson, Jaques, & Co v Mclean (1880) 5 QBD 346 at 349–50, applied in Brambles Holdings Ltd v Bathurst City Council (supra) at [157]). The question is what a reasonable person in the position of the offeror would have understood (see Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502, cited in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549).

In the present case, the relevant offer was made to the plaintiff on 9 August 2019 pursuant to cl 14 of the lease. Clause 14 contains an agreement by the defendants that in certain circumstances they will offer to sell the property to the plaintiff who must, within 14 days of notification of “this first right of refusal”, enter into an agreement to purchase the property by exchanging a contract on certain terms.

The expression “first right of refusal” ought not be regarded as one that has any fixed or technical meaning (see Woodroffe v Box (1954) 92 CLR 245 at 257–8; Woolworths Ltd v About Life Pty Ltd (2017) 18 BPR 36,983; [2017] NSWSC 1117 at [89]). Nevertheless, I think that it may be said in relation to cl 14 of the lease that if the defined circumstances arise (that is, if the defendants decide to sell the property) the plaintiff was to be given a 14 day period within which it could either enter into the contract to purchase or else refuse that opportunity to purchase the property (see Goldmaster Homes Pty Ltd v Johnson (2004) 12 BPR 23,167; [2004] NSWCA 144 at [35]). In that situation the plaintiff, as the grantee of the first right of refusal, would be considered to have an equitable interest in the property (see Sahade v BP Australia Pty Ltd (2004) 12 BPR 22,149; [2004] NSWSC 512 at [41]-[43]). It nevertheless remained open to the plaintiff to refuse the opportunity at any time during the 14 day period. That could be done in a number of ways, including by express statement to that effect, or by rejection of the defendants’ offer to sell. The question is whether Mr Dowling’s email of 19 August 2019 amounted to such a rejection.

As I have said, it is necessary to consider the terms of the email in the context and circumstances in which the email was sent. The circumstances include, of course, the terms of the offer made on 9 August 2019 including that the offer was to purchase the property for $3 million (including a 10% deposit) and the offer was expressed to be open for a 14 day period ending at 3:00pm on 23 August 2019. The circumstances also include the communications that passed between Mr Dowling and Mr Mirzaian after the making of the offer and before the sending of the email.

It is clear that on 12 August 2019 Mr Dowling spoke to Mr Mirzaian and expressed an interest in engaging in negotiations “concerning the terms of the sale”. Mr Dowling requested that a blank contract be sent to him, presumably for that purpose. This conversation followed Mr Mirzaian’s email sent earlier that day in which Mr Mirzaian stated that it “would be great to get this one done prior with you”, and requested that Mr Dowling call him.

In his email of 13 August 2019, Mr Dowling stated that the plaintiff “will consider putting in an offer” and again requested that a blank contract be sent to him. I note in passing that this email referred to a conversation held earlier on 13 August 2019, but neither Mr Dowling nor Mr Mirzaian mention any such conversation in their affidavits.

There was a further conversation shortly prior to 6:28pm on 13 August 2019. It is likely that the conversation was broadly to the effect of that which is recorded in Mr Mirzaian’s typewritten note (which differs in some respects from the accounts given by both participants in their affidavits). It seems that Mr Dowling told Mr Mirzaian that an offer by the plaintiff would likely be about $2.4 million “with the view to negotiate”. It also seems that Mr Mirzaian told Mr Dowling that he should “submit his best position first”, but there was a chance another buyer will see value at $3 million.

The email sent by Mr Mirzaian shortly after this conversation stated that the vendors’ position “has been presented to you at $3,000,000” and that a contract lower than that could not be provided.

Up to that point it can be seen that Mr Dowling was expressing interest in engaging in negotiations concerning the terms of the sale, including as to price. Mr Dowling was evidently aiming for negotiations to occur at a level well below the $3 million offer price, but Mr Mirzaian continued to maintain that the vendors’ position remained at the level of $3 million. I interpose here that I accept Mr Dowling’s evidence that around this time Mr Mirzaian did tell Mr Dowling on more than one occasion that the only way the plaintiff could be guaranteed to buy the property “is to pay the $3 million”. Nevertheless, Mr Mirzaian was not closing off the possibility of negotiations. He told Mr Dowling that he should “submit his best position first”.

Mr Dowling’s email of 19 August 2019 refers to the plaintiff having been working to formulate the best possible offer. It is stated that on that basis “we would offer $2,650,000”. A response from the defendants was sought on the following morning so that the plaintiff could either “move ahead or move on”. Mr Dowling’s email also stated “we would request” a 90 day settlement to allow appropriate ownership structures to be put in place.

The language employed in the email (“we would offer”, “we would request”) lacks immediacy and is not indicative of an intention to then and there make a firm or specific counter-offer. The language seems to be somewhat exploratory in tone, and is apt for the submission of a best position for the purpose of negotiations. There is an element of manoeuvring towards, or making overtures for, a more formal negotiation to occur. The reference to moving ahead or moving on is itself apt to refer to the negotiations which Mr Dowling was evidently attempting to ignite.

In my opinion, when viewed in the context and circumstances in which it was sent, Mr Dowling’s email of 19 August 2019 would not have been understood by a reasonable person in the position of the defendants as a rejection of the offer made on 9 August 2019. In particular, it would not have been understood as a counter-offer to that offer. The email would rather have been understood as the provision by the plaintiff of its “best position”, as requested by Mr Mirzaian, with a view to engaging in negotiations about the terms of a sale of the property. Moreover, a reasonable person in the position of the defendants would not have seen such negotiations as necessarily inconsistent with the continued existence of the 9 August 2019 offer which had been expressed to remain open until 23 August 2019. I do not accept the submission that the case is exactly like Hyde v Wrench (supra).

It is relevant to note that Mr Mirzaian himself did not regard Mr Dowling’s email as amounting to a rejection of the 9 August 2019 offer, or as an event that brought that offer to an end. In his email sent later on 19 August 2019, Mr Mirzaian referred to both “your position” and “your offer”, and evidently contemplated that adjustments might be made to that position or offer in the period remaining until the expiry of the 9 August 2019 offer. Mr Mirzaian, by stating that the 9 August 2019 offer “will expire this Friday the 23rd August at 3pm” apparently understood that the offer remained alive in accordance with its terms. Moreover, Mr Mirzaian, by enquiring whether the plaintiff might increase its offer “prior to this expiry”, apparently contemplated the co-existence of the offer and negotiations with the plaintiff about the terms of a sale of the property.

Mr Mirzaian’s subjective understanding is of course not relevant to the question at hand. However, the fact that an experienced agent such as Mr Mirzaian (albeit with no prior experience of a first right of refusal) did not understand that Mr Dowling’s email of 19 August 2019 brought the 9 August 2019 offer to an end is itself some evidence that Mr Dowling’s email ought reasonably to have been understood in the manner I have described.

For the above reasons, I have concluded that the offer made to the plaintiff on 9 August 2019 was not rejected by the plaintiff on 19 August 2019. It remained open for acceptance until 3:00pm on 23 August 2019 in accordance with its terms.

The plaintiff did all it could to accept the offer in accordance with those terms by seeking to exchange the proffered contract for sale and pay the $300,000 deposit, but the defendants declined to proceed. The defendants were not entitled to refuse to exchange contracts, and cannot now be heard to say that the offer was not accepted (cf Bragg v Alam [1981] 1 NSWLR 668 at 673–4; affirmed in Bragg v Alam (1982) NSW ConvR 55-082; see also J D Heydon, Heydon on Contract (supra) at [2.490]). It is appropriate that an order be made in the nature of specific performance requiring the defendants to now enter into a contract for the sale of the property on the terms the subject of the offer made on 9 August 2019. The Court will further order that the defendants pay the plaintiff’s costs of the proceedings.