England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE VICE-CHANCELLOR
(SIR RICHARD SCOTT)

		Royal Courts of Justice Strand, London, WC2A 2LL Tuesday 22nd May 2001

LORD JUSTICE CHADWICK :

1. This is an appeal against an order made on 3 November 1999 by Sir Richard Scott, Vice-Chancellor, in proceedings brought by the appellants, Bircham & Co Nominees (No 2) Limited and Sarah Stowell, against Worrell Holdings Limited in relation to property known as 13 Alexander Square, London SW3. The property is held by Worrell Holdings from the appellants under a lease granted in 1984. The issue on the appeal is whether an agreement for the sale by Worrell Holdings to the appellants of the remainder of the term of the lease, following the exercise or purported exercise by the appellants of rights of pre-emption granted by the lease, is enforceable notwithstanding that the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 are not satisfied. Permission to appeal was granted by this Court (Lord Justice Aldous) on 24 January 2000.

The underlying facts

2. The property, 13 Alexander Square, is held on a long lease granted on 15 May 1984. The reversion expectant on the determination of the term is vested in the appellants as nominees for the trustees of the Alexander Trust. The leasehold interest was acquired by Worrell Holdings under an assignment dated 25 February 1991. Clause 5 of the lease is in these terms (so far as material):

"If at any time during the term hereby created the Lessee shall wish to dispose of the term hereby created in the demised premises it shall first offer the same in writing to the Lessors stating the price at which it is prepared to sell the same and the encumbrances (if any) subject to which the said term shall be assigned. If the Lessors shall not within twenty-one days of the receipt of such notice accept the offer therein contained the Lessee may within six months thereafter (subject to getting the Lessors' consent thereto as hereinbefore provided) assign the said term to an approved assignee at a price equivalent to or greater than that at which it was offered to the Lessors, but shall not assign the same for any lesser sum than that at which it was last offered to the Lessors without again offering the same in writing to the Lessors at such lower figure."

3. On 30 September 1997 Messrs W A Ellis, as agents of Worrell Holdings, wrote to Cluttons, the agents for the landlords, enclosing a sales brochure in respect of the property. That letter was followed, a month later, by a facsimile message dated 28 October 1997:

"Re: 13 Alexander Square – Worrell Holdings Ltd

You will be aware that we have been marketing this property for some time now and I am now writing to inform you that we have had an acceptable offer of £1.7 million for the remaining leasehold interest from an offshore company.

I note that under the terms of the lease that the Alexander Trust has a right of pre-emption and I will be grateful if you could let either Karen Carpmael or myself know if the trust wishes to exercise it. It is my understanding that the Estate has to let my clients know within three weeks if they wish to proceed, however, if you are aware that this is something that the Estate certainly would not wish to do we would be grateful if you could let us know as soon as possible so that we can arrange for a contract to be sent out.

I look forward to hearing from you at your earliest convenience."

4. The period of twenty-one days from 28 October 1997 expired on 18 November 1997. On that day Messrs Bircham & Co, solicitors, replied to W A Ellis, also by facsimile:

"We confirm that we act for the Trustees of the Alexander Trust and that the Trustees wish to exercise the right of pre-emption set out in clause 5 of the Lease dated 2nd May 1984. We confirm that our clients accept the offer contained in your letter of £1.7m for the remaining unencumbered leasehold interest on the basis that vacant possession will be given on Completion and that the curtains, carpets and kitchen fittings are included in the sum of £1.7m."

That letter was acknowledged on the same day by Messrs Portrait, the solicitors then instructed by Worrell Holdings. They wrote, on 18 November 1997:

"In view of the fact that your clients are the freeholders of this property we would propose that the matter proceeds straight to completion by way of surrender to take place within ten working days of the 18th November 1997. Please confirm that that is agreed."

5. Despite chasing letters of 2 and 8 December 1997 Bircham & Co heard nothing further from Portrait until 11 December 1997. By a letter of that date Portrait sent a draft deed of surrender, copies of their client's title and an inventory listing the items which would remain at the property at completion. That letter crossed with a letter of the same date from Bircham & Co, purporting to make time of the essence of the contract and requiring completion within 28 days. On 18 December 1997 Bircham & Co returned the draft deed of surrender, with amendment, and indicated that they were taking instructions regarding the inventory. They asked for a date for completion.
6. Before Portrait could respond to that letter, and for reasons which I shall explain, Worrell Holdings had instructed new solicitors, Messrs Adler & Co. The new solicitors wrote to Bircham & Co on 7 January 1998. They asserted that there was no binding contract for the sale of the leasehold interest. They took three points: (i) they denied that the letter from W A Ellis of 28 October 1997 (wrongly described as a letter dated 18 November) constituted an offer to sell; (ii) in the alternative, they denied that Bircham & Co's letter of 18 November 1997 (wrongly described as a letter dated 28 November) amounted to an acceptance of any offer that was contained in the letter of 28 October 1997; and (iii) in any event, they pointed out that, even if the two letters of 28 October and 18 November 1997 were to be treated as an offer and an acceptance, those letters could not satisfy the requirements of section 2 of the 1989 Act. The letter concluded:

"We therefore take this opportunity of informing you that our clients no longer wish to sell the Property at this stage. Accordingly, we would ask you for your formal confirmation that your client accepts that no contract exists between your client and our client company . . ."

7. That confirmation was not forthcoming. Bircham & Co wrote on 9 January 1998, rejecting each of the three contentions advanced in Adler & Co's letter of 7 January; and asserting "that the lessors have every intention of enforcing this contract and will not allow the matter to rest until this position is achieved." These proceedings, seeking specific performance of the alleged obligation to surrender the lease, were commenced in or about July 1998.
8. The reason for the apparent change of mind on the part of Worrell Holdings, between the letter dated 11 December 1997 from Portrait and the letter dated 7 January 1998 from its new solicitors, Adler & Co, is, I think, irrelevant to the issues which fall for decision on this appeal. But this judgment would be incomplete without a short explanation. The prospective purchasers from whom W A Ellis had received what they described in their facsimile letter of 28 October 1997 as "an acceptable offer of £1.7 million . . . from an offshore company" were Mr and Mrs B A Fellowes. Between 28 October and 18 November 1997 matters proceeded, as between Worrell Holdings, W A Ellis and Mr and Mrs Fellowes, on the basis that the leasehold interest would be sold by Worrell Holdings to Mr and Mrs Fellowes at a price of £1.7 million. It is clear that the lessors' decision, on 18 November 1997, to exercise pre-emption rights under clause 5 of the lease came as unwelcome news to the prospective purchasers. On 20 November 1998 Mr Fellowes wrote to Cluttons, the lessors' agents, offering to buy 13 Alexander Square on whatever leasehold or freehold basis their clients might have in mind. But that suggestion was not acceptable. So Mr and Mrs Fellowes decided to make an offer for the shares in Worrell Holdings. Worrell Holdings is, it seems, a single asset company incorporated in the British Virgin Islands and having Jersey-based directors. That offer was accepted and control of the company passed to Mr and Mr and Mrs Fellowes. That enabled them to occupy the property without the need for an assignment of the lease.
9. It is, perhaps, pertinent to note that (i) that the original lessee under the 1984 lease was a company registered in Panama and (ii) that the lease contains an express covenant requiring the property to be used as a private dwelling house in single occupation and for no other purpose whatsoever. It was plainly contemplated – no doubt with the enfranchisement provisions of the 1967 Act in mind – that the property would be occupied by an individual or family under arrangements which left the lease held by an offshore company which he or they controlled. It has not been suggested, so far as I am aware, either that the occupation by Mr and Mrs Fellowes is in breach of any covenant in the lease, or that their purchase of the shares in Worrell Holdings triggered any right of pre-emption in the lease. Sir Richard Scott, Vice-Chancellor – with, perhaps, more than a hint of disapproval - referred to the purchase of the shares as a "stratagem for getting round the obstacle constituted by the right of pre-emption". I would not, myself, think it right to criticise Mr and Mrs Fellowes for adopting a course which was permitted by the terms of the lease which the Alexander Trust had been content to grant in 1984. A lessor who chooses to grant a residential lease to a corporate lessee – and, thereafter, to permit assignment of the lease to a single asset offshore company – cannot be heard to complain if a subsequent purchaser chooses to purchase the corporate vehicle in which the lease is held, rather than to take an assignment of the lease; notwithstanding that that course avoids the operation of a right of pre-emption reserved to the lessor by the lease.

The Law of Property (Miscellaneous Provisions) Act 1989

10. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 is in these terms, so far as material:

"(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.

(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.

(3) The document incorporating the terms or, where terms are exchanged, one of the documents incorporating the terms (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

. . .

(7) Nothing in this section shall apply in relation to contracts made before this section comes into force."

The section came into force on 27 September 1989.

The issues at trial

11. The Vice-Chancellor considered, first, whether there was ever a concluded agreement for the sale of the leasehold interest to the appellants. He recorded that the first contention advanced in the letter dated 7 January 1998 from Alder & Co to which I have referred – that the facsimile letter of 28 October 1997 from W A Ellis was not, itself, an offer made pursuant to clause 5 of the lease - was no longer pursued. But he held that the offer contained in that letter was not accepted by the letter of 18 November 1997 from Bircham & Co. As he put it, at page 11 in the transcript of his judgement:

"A comparison of that acceptance letter with the 28th October offer letter shows that the expressed basis on which the acceptance was communicated is not to be found in the offer letter. As to the requirement that vacant possession would be given on completion nothing turns on that. That would be implied in any event. But the requirement that the curtains, carpets and kitchen fittings were to be included in the sale prevents, in my judgment, this letter of 18 November 1997 being treated as a clean acceptance of the offer made in the letter of 28th October 1997."

There is no appeal against that finding.

12. The Vice-Chancellor held, also, that no concluded agreement for the sale of the leasehold interest - either with or without curtains, carpets and kitchen fittings - had been made orally, in the course of discussion between agents before Bircham & Co's letter of 18 November 1997. In particular, he rejected the evidence of Mr Trumper, of Cluttons, that he had been assured by Mr Barker, of W A Ellis, in the course of a telephone conversation on 17 November 1997, that carpets, curtains and kitchen equipment were included within the sale price; and that it was on the basis of that assurance that Bircham & Co wrote on 18 November 1997 in the terms that they did. There is no appeal against that finding.
13. But the Vice-Chancellor went on to say this, at page 19 in the transcript of his judgment:

"So where does that leave the contractual agreement on which the Claimants must found their case? I am not sure that the 18th November acceptance letter is necessarily the end of the story, if one is looking at the events simply with an eye to deciding whether there was ever a consensus between the parties and ignoring, although it is somewhat artificial to do so, section 2 of the 1989 Act. The response from everyone acting on behalf of the Defendant to the acceptance letter of 18th November which required the sale to include, and the price of £1.7 million to cover, curtains, carpets and kitchen fittings, was tacit agreement. Both sides proceeded on the footing that all the terms of the sale had been agreed. If one can simply ignore the requirements of section 2, if the contract had been one which could be made orally, I would have inferred that agreement had been reached. That is not the basis, however, on which the Claimants have pleaded their case. Nor is it the basis on which they have argued the case before me."

The respondent to this appeal, Worrell Holdings, has not challenged the finding that there was material upon which it could be inferred that the proposal contained in the letter of 18 November 1997 – treating that letter as a counter-offer – was accepted by conduct thereafter. No doubt it takes the view that, having regard to the provisions of section 2 of the 1989 Act, it does not need to do so.

14. If, in the present case, the only agreement for the sale of the leasehold interest in the property to the appellants is an agreement to be inferred from the conduct of Worrell Holdings, through its agents or solicitors, after the letter of 18 November 1997, then the only document incorporating all the terms which the parties have expressly agreed is that letter; and that letter has not been signed by or on behalf of Worrell Holdings. So, as the Vice-Chancellor held (at page 20), the requirements of section 2 of the 1989 Act are not satisfied. The agreement has no contractual effect.
15. There are obvious difficulties in the way of a claimant who seeks specific performance of an agreement which, by reason of the provisions enacted in section 2 of the 1989 Act, has no contractual effect. In an endeavour to overcome those difficulties, the appellants advanced two arguments before the Vice-Chancellor. First, it was said that the effect of clause 5 of the lease, in conjunction with the facsimile letter of 28 October 1997, was that the appellants acquired an equitable interest in the lease. They could require the remainder of the term of the lease to be assigned to them by an order for specific performance without the need to rely upon any subsequent contract which satisfied section 2 of the 1989 Act. Second, it was said that a term must be implied into clause 5 of the lease to the effect that any offer to be made under that clause must be made in a form which enables it to be converted – unilaterally by the offeree - into a contract which complies with the requirements of section 2 of the Act. That required, at the least, that any offer to be made under clause 5 must be signed by or on behalf of the lessee. The facsimile letter of 28 October 1997 did not satisfy that requirement; because, it was said, it contained only a facsimile copy of the agent's signature. So the lessee had not complied with clause 5 of the lease; and the appellant was entitled to an order requiring it to do so.
16. The Vice-Chancellor described the second ground as "so hopeless as to be difficult to describe." He rejected it for the two reasons which he gave. First, he held that a facsimile of a document which had been signed by or on behalf of the offeror would, if signed by or on behalf of the offeree, be sufficient for the purposes of section 2(3) of the 1989 Act. Second, he pointed out, in a passage which is of importance in another context, that (properly understood) the obligation imposed on the lessee by clause 5 of the lease is not a positive obligation to offer the leasehold interest to the lessors; rather it is a negative obligation not to dispose of the leasehold interest to anyone else without first having offered it to the lessors. In a case where the lessee was threatening to dispose of the leasehold interest without having offered it to the lessors, the negative obligation could be enforced by injunction. But that was not this case. There was no positive obligation capable of being the subject of an order for specific performance. The second ground has not been pursued in this Court.
17. The first of the grounds advanced before the Vice-Chancellor – that the effect of clause 5 of the lease, in conjunction with the facsimile letter of 28 October 1997, was that the appellants acquired an equitable interest in the remainder of the term of the lease which they could enforce without the need to rely upon any subsequent contract – is, in substance, the only ground advanced on this appeal. The basis upon which the Vice-Chancellor rejected the submission may be summarised as follows: (i) clause 5 does not, of itself, create any interest in land – see the first limb of the decision of this Court in Pritchard v Briggs [1980] Ch 338, which distinguished a right of pre-emption from an option in that respect; (ii) an interest in land will arise if, and when, some event occurs as a result of which rights arise under a right of pre-emption which no longer depend upon the volition of the grantor – see the observations of Lord Justice Templeman in Pritchard v Briggs, at page 418H, and the decision of Mr Justice Vinelott in Kling v Keston (1983) 29 P&CR 212; (iii) the question whether such an event has occurred has to be determined by reference to the terms in which the particular right of pre-emption has been granted; (iv) upon a proper understanding of clause 5, the lessee is under no positive obligation to make an offer to the lessor, and an offer (once made) can be withdrawn at any time before it has been converted by acceptance into a binding contract – see the decision of this Court in Tuck v Baker [1992] EGLR 195; and (v) an offer which can be withdrawn, at the volition of the offeror, at any time before acceptance is not analogous to an option and does not create an interest in land.

The obligation imposed by clause 5 of the lease

18. In order to address the issue raised on this appeal it is necessary to be clear as to the scope and effect of the obligation imposed by clause 5 of the lease. Ignoring words which are immaterial in the present context, the clause may be analysed as follows: (i) "If at any time . . . the Lessee shall wish to dispose of the . . . demised premises it shall first offer the same in writing to the Lessors (ii) stating the price . . . and the encumbrances (if any) subject to which the said term shall be assigned. (iii) If the Lessors shall not within twenty-one days . . . accept the offer . . . (iv) the Lessee may within six months thereafter . . . assign the said term to an approved assignee at a price equivalent to or greater than that at which it was offered to the Lessors, (v) but shall not assign the same for any lesser sum . . ."
19. There are, to my mind, three features of that clause which are beyond doubt. First, the clause imposes a restriction on whatever rights the lessee might otherwise have under the lease to assign the term. The restriction has four elements: the lessee may not assign the term to a third party unless (i) it has first offered it for sale to the lessors, (ii) the offer has remained open for acceptance (and has not been accepted) for a period of three weeks, (iii) the price to be paid by the third party is not less than the price at which the term was offered to the lessee and (iv) the assignment (or, perhaps, the contract to assign) to the third party is effected within six months of the offer to the lessors. Second, it is for the lessee, and for the lessee alone, to fix the offer price and to decide whether the term should be offered subject to any (and if so what) encumbrances. Third, the only obligation upon the lessee to assign – or upon the lessors to take an assignment – which is contemplated by clause 5 is an obligation to assign upon the terms of the offer made by the lessee and accepted by the lessors. There is nothing in clause 5 which enables the lessors to require an assignment upon any terms other than those contained in the offer which is to be made by the lessee. If the lessors and the lessee agree a sale upon some other terms, that agreement must be treated as a new agreement, distinct from any agreement in the lease, in relation to which the requirements in section 2 of the 1989 Act must be satisfied.
20. There are two other features of clause 5 in relation to which, as it seems to me, the position is rather less clear. First, the language used in the clause raises the question whether there is any positive obligation upon the lessee to make an offer to sell to the lessors – and, if so, when that obligation arises - or whether the only obligation is the negative obligation not to sell to a third party without first having made an offer to the lessors.
21. The Vice-Chancellor held that the clause imposed no positive obligation to make an offer to sell to the lessors at any time earlier than immediately before entering into a binding contract to sell to a third party. After setting out the opening words of clause 5 – "If at any time . . . the Lessee shall wish to dispose of the . . . demised premises it shall first offer the same in writing to the Lessors" - he said this, at pages 24-25 in the transcript of his judgment:

"That language incorporates two conditions. One condition relates to the wish of the lessee to dispose of the lease. The other relates to the time at which the pre-emption offer must be made. The latter requires no more than that the pre-emption offer must be made before the term is disposed of to anyone else: ". . . it shall first offer the same . . ." For this purpose property is disposed of by the conclusion of binding contracts. It is not necessary to wait for completion of the contract. So, under a pre-emption contract in these terms, in my judgment, the obligation imposed on the grantor is an obligation to make the pre-emption offer before entering into a binding contract with anyone else. Unless and until the pre-emption holder contracts to sell to someone else, it is not possible, in my judgment, as a matter of construction of a pre-emption contract in this form, for the grantor to be in breach of the pre-emption contract."

That conclusion is not challenged in the grounds of appeal. Nor, as I understand it, did the appellants seek to challenge that conclusion in the skeleton argument submitted on their behalf or in oral argument. It would be enough, therefore, to say that I agree with that conclusion. But the point is of importance; and a short explanation of the reasons why I do agree may be appropriate.

22. As the Vice-Chancellor pointed out, the effect of a pre-emption clause depends upon its own particular terms. In the present case, as the Vice-Chancellor emphasised in the passage which I have just set out, weight must be given to the word "first". In the context in which it is used, that word identifies the time at which the pre-emption offer is to be made by the lessee to the lessors; and the point in time that it does identify is no more specific than "some time before the lessee disposes of the term to a third party". It is plain that the phrase "shall first offer" cannot require the lessee to make an offer to the lessors at any time before the lessee has formed a desire to dispose of the term. The time at which the offer is to be made cannot pre-date the period during which "the Lessee shall wish to dispose of the term". The time at which the offer is to be made must be some time during that period. But there is no indication when, during that period, the pre-emption offer must be made; other than that it must be made before the lessee disposes of the term to another.
23. It is important to emphasise that the conclusion that clause 5 of the 1984 lease imposes no positive obligation on the lessee to make an offer to sell to the lessors at any time earlier than immediately before entering into a binding contract to sell to a third party is based upon the words used in that clause. It would not be difficult to imagine a clause which contained different words and which had a different effect. An obvious example would be the use of the word "forthwith" in place of the word "first". But that is not this case.
24. The second feature of clause 5 in relation to which, as it seems to me, the position is rather less clear is whether an offer by the lessee to sell the term to the lessors, once made, can be withdrawn by the lessee during the following period of twenty-one days. The Vice-Chancellor held that it followed from his conclusion that the clause imposed no positive obligation to make an offer to sell to the lessors at any time earlier than immediately before entering into a binding contract to sell to a third party that there was no obligation to keep open an offer which had been made. Of course, if the lessee did withdraw the offer within the period of twenty-one days, then it could not dispose of the property to a third party (consistently with the negative obligation imposed by clause 5) without first renewing the offer (or making a further offer) to the lessors. But, if the lessee no longer wished to dispose of the property, there was no reason why it should keep the offer open. The offer could be withdrawn at any time before it had been converted into a binding contract by acceptance.
25. That conclusion is not challenged – at least not challenged in express terms – in the grounds of appeal. It is not challenged in the appellants' skeleton argument. Nor, I think, was it challenged in oral argument on the hearing of the appeal. I have no doubt that it was correct. Once again, the question turns on the meaning and effect of the words used in the particular pre-emption clause. There is no difficulty (if that is what the parties intend) in making express provision in such a clause for the pre-emption offer, once made, to remain open for a specified period. An example of such provision can be found in Pritchard v Briggs [1980] Ch 338 – see at pages 350A-B and 382D-E. In the absence of an express provision, the structure of the clause may itself, as a matter of interpretation, lead to the conclusion that that was what the parties intended. But, in the absence of express provision or of some context from which the parties' intention can be inferred, there is no basis upon which a restriction on the right of an offeror, under the general law, to withdraw its offer at any time before acceptance can be implied – see the decision of this Court in Tuck and another v Baker and others [1990] 2 EGLR 195. As it was put by Lord Justice Mustill (with whom the other members of the Court, Lord Justice Beldam and Lord Justice Leggatt agreed), at page 196H-J:

". . . the test for an implied term is not whether it might have been sensible to include such a provision in the contract, but whether the contract will work properly without it. To my mind, the contract will work perfectly well without any provision that the mechanism once started can never be stopped without the vendors' consent. I would not imply any such term.

In order to understand the reference, there, to "the vendors' consent" it is necessary to have in mind that, in that case, the right of pre-emption had been reserved by the vendors in a conveyance on sale to the purchasers – that is to say, it was the vendors who had the benefit of the right. In my view Tuck v Baker is indistinguishable from the present case on this point.

The issue on this appeal

26. The only issue, therefore, which calls for decision on this appeal is whether the effect of the offer made in the facsimile letter of 28 October 1997 from W A Ellis was that the requirements of section 2 of the 1989 Act had no application to the agreement for the sale of the leasehold term which, as the Vice-Chancellor was prepared to infer, had been made after (and upon the terms of) the letter of 18 November 1997 from Bircham & Co. In the circumstances (i) that the offer made on 28 October 1997 was never accepted in the terms in which it was made, (ii) that, on any conventional analysis, the letter of 18 November 1997 was a counter-offer which had the effect of determining the offer of 28 October 1997, and (iii) that, if there were an agreement for the sale of the term, it was made by the acceptance (by conduct) of that counter-offer, the answer to that question might seem self evident: the offer made in the facsimile letter of 28 October 1997 did not have the effect of excluding the need to comply with section 2 of the 1989 Act.
27. Nevertheless, it is said that an equitable interest in the property – that is to say, an interest analogous to that conferred by an option - arose under the terms of clause 5 of the lease, either taken alone or taken in conjunction with the facsimile letter of 28 October 1997. If it did, then it is said that the relevant contract was made before section 2 of the 1989 Act came into force; and that, for that reason, the requirements of sections 2(1) and 2(3) have no application – see section 2(7) of the Act.
28. There is a short answer to any suggestion that an equitable interest in the property – analogous to that conferred by an option – arose under the terms of clause 5 of the lease, taken alone. That point was determined by the decision of this Court in Pritchard v Briggs [1980] Ch 338. The appellants do not, I think, contend otherwise; although they wish to keep the point open for argument if the matter goes further.
29. It is pertinent, however, to have in mind the reason why this Court decided, in Pritchard v Briggs, that the grant of a right of pre-emption does not create an equitable interest in land. That appears, perhaps most clearly, from the judgment of Lord Justice Goff at pages 388G-389C. He referred, first, to the well known passage in the judgment of Sir George Jessel, Master of the Rolls, in London and South Western Railway Company v Gomm (1881) 20 ChD 562, at page 581. The Master of the Rolls, in explaining why the grant of an option does create an interest in land, had said this:

"The right to call for a conveyance of the land is an equitable interest or equitable estate. In the ordinary case of a contract for purchase there is no doubt about this, and an option for repurchase is not different in its nature. A person exercising the option has to do two things, he has to give notice of his intention to purchase, and to pay the purchase money; but as far as the man who is liable to convey is concerned, his estate or interest is taken away from him without his consent, and the right to take it away being vested in another, the covenant giving the option must give that other an interest in the land."

Lord Justice Goff went on, at [1980] Ch 338, 389B:

"In my judgment a right of pre-emption, and particularly that in the present case which is in a purely negative form, does not satisfy this test. Mr Francis argued that it does because it fetters one of the important rights inherent in ownership, that of freedom of alienation. I cannot accept that, however, because a right of pre-emption gives no present right, even contingent, to call for a conveyance of the legal estate. So far as the parties are concerned, whatever economic or other pressures may come to affect the grantor, he is still absolutely free to sell or not. The grantee cannot require him to do so, or demand that an offer be made to him. Moreover, even if the grantor decides to sell and makes an offer it seems to me that so long as he does not sell to anyone else he can withdraw that offer at any time."

30. Lord Justice Templeman (at page 418B-E) and Lord Justice Stephenson (at page 423F-G) agreed with Lord Justice Goff on that point. Both Lord Justice Goff and Lord Justice Stephenson expressly adopted a passage in the judgment of Mr Justice Street, in the Supreme Court of New South Wales, in Mackay v Wilson (1947) 47 S.R. (NSW) 315, at page 325. It is, I think, helpful to set out that passage:

"Speaking generally, the giving of an option to purchase land prima facie implies that the giver of the option is to be taken as making a continuing offer to sell the land, which may at any moment be converted into a contract by the optionee notifying his acceptance of that offer. The agreement to give the option imposes a positive obligation on the prospective vendor to keep the option open during the agreed period so that it remains available for acceptance by the optionee at any moment within that period. It has more than a mere contractual operation and confers upon the optionee an interest in the land, the subject of the agreement; see, for example, per Williams J in Sharp v Union Trustee Co of Australia Ltd (1944) 69 CLR 539, 558.

But an agreement to give 'the first refusal' or 'a right of pre-emption' confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer. It is not an offer and in itself it imposes no obligation on the owner of the land to sell the same. He may do so or not as he wishes. But if he does decide to sell, then the holder of the right of first refusal has the right to receive the first offer, which he also may accept or not as he wishes. The right is not contractual and no equitable interest in the land is created by the agreement."

31. Mr Justice Street draws no distinction, in that passage, between a right of first refusal and a right of pre-emption. In so far as there is a distinction, the expression "right of first refusal" is commonly used to describe the position (as in the present case) where the grantee has the first right to refuse an offer to purchase at the price at which the grantor is willing to sell; and the expression "right of pre-emption" is commonly used to describe the position (as in Pritchard v Briggs) where the grantee has the right to purchase at a fixed price (or at a price which is not chosen by the grantor) before the grantor is free to sell to anyone else. The distinction is not material in the present context.
32. The analysis in Mackay v Wilson may, perhaps, be said to leave open the question whether the position changes if and when the grantor of the right of first refusal (or right of pre-emption, as the case may be) does make an offer to the grantee: does an offer made by the grantor, for the purpose of giving effect to the grantee's right of first refusal, have the effect of converting the right into an option? If it does, then it would follow that an equitable interest would arise on the making of the offer. On that question the Court of Appeal in Pritchard v Briggs were divided.
33. The covenant under consideration in Pritchard v Briggs was a covenant in a conveyance by vendors over land which they retained that they would not:

"sell or concur in selling all or any part of the retained land without giving the option of purchasing the retained lands . . . at £3,000. The option shall be given in writing and shall not be revoked or altered within 21 days and . . . shall cease unless the option is accepted within 21 days from the receipt. If the option is accepted . . . the sale shall be completed and vacant possession given . . . at the expiration of one month."

Lord Justice Templeman (with whom Lord Justice Stephenson agreed) said this, at [1980] Ch 338, 418H:

"Thus the relationship of vendor and purchaser could not be established unless the [vendors] chose to offer the retained lands to the holder of the right of pre-emption or, in breach of covenant, contracted to sell the retained lands to a third party without first offering the lands to the option holder for £3,000. If and when these conditions were fulfilled, the holder of the right of pre-emption would be entitled to buy and therefore entitled to an equitable interest."

It is, I think, implicit in those observations that an equitable interest would arise as soon as the grantors chose to offer the land to the grantees; that is to say, an equitable interest analogous to - and (to my mind) indistinguishable from – an interest under an option would arise when the offer was made, whether or not the offer was accepted. But, of course, the interest would lapse if the offer were not accepted within the twenty one day period for which the offer was to remain open.

34. It was unnecessary for this Court to decide, in Pritchard v Briggs, whether or not an equitable interest arose at the time when an offer was made to the grantees under the right of pre-emption. The point did not arise for decision; because, before any offer was made, the grantors had granted an option (properly so called) to a third party, exercisable after the death of the survivor. The issue in Pritchard v Briggs was whether the grantees of the right of pre-emption (who had purchased the lands by accepting an offer made to them) held the lands which they had purchased subject to the interest of the option holder. It was held that they did. But that issue turned on whether the grantees of the right of pre-emption had acquired an equitable interest in the lands at the time that the right of pre-emption was granted. By the time that the offer was made under the right of pre-emption the lands were already subject to the option in favour of the third party. Strictly, therefore, the observations as to the effect of the offer were obiter dicta. But, for my part, I would accept that the observations of Lord Justice Templeman, at page 418H, were correct, in the context in which they were made.
35. It is essential, however, to have regard to the context in which those observations were made. The covenant under consideration in Pritchard v Briggs required that the offer, when made to the person entitled to the right of pre-emption, "shall not be revoked or altered within 21 days." It may be that Lord Justice Goff did not have the terms of the particular covenant in mind when he said, at [1980] Ch 338, 389C, in a passage to which I have already referred: "Moreover, even if the grantor decides to sell and makes an offer it seems to me that so long as he does not sell to anyone else he can withdraw that offer at any time before acceptance." That was a course which was not open to the grantors in Pritchard v Briggs – at least, not until the period of twenty one days had expired. The importance of the point is this. Where an offer is made upon terms that it will remain open for acceptance for a specified time it has the characteristic which has led the courts, since at least the decision in London & South Western Railway Co v Gomm (1881) 20 ChD 562, to hold that the offeree obtains an immediate equitable interest in land. In the words of Mr Justice Street in Mackay v Wilson (1947) 47 S.R. (NSW) 315, 325 there is, in those circumstances:

". . . a positive obligation on the prospective vendor to keep the offer open during the agreed period so that it remains available for acceptance by the optionee at any moment within that period. It has more than a mere contractual operation and confers on the optionee an equitable interest in the land, the subject of the agreement; . . ."

An offer made on terms that it will remain open for acceptance for a specified time is indistinguishable from an option – indeed, to my mind, an offer made on such terms is properly described as an option. But, where the offer is made on terms that it can be withdrawn at any time before acceptance, it does not have the characteristic essential to an option. Such an offer is indistinguishable from any other contractual offer. The offeror remains free, at any time before acceptance, to decide that he will not part with the land – see Tuck v Baker [1990] 2 EGLR 195.

36. We were referred to the decision of Mr Justice Vinelott in Kling v Keston Properties Ltd (1983) 49 P&CR 212. The case provides an illustration of the principle to which Lord Justice Templeman had referred in Pritchard v Briggs at [1980] Ch 338, 418H, when he said:

". . . unless the [vendors] . . . in breach of covenant, contracted to sell the retained lands to a third party without first offering the lands to the option holder for £3,000. If and when [that] condition [was] fulfilled, the holder of the right of pre-emption would be entitled to buy and therefore entitled to an equitable interest."

The principle is not in doubt. The position in the present case – as the Vice-Chancellor pointed out – is that Worrell Holdings had not contracted to sell the lease to a third party. So the relevant condition has not been fulfilled. The appellants gain no assistance from the decision in Kling v Keston.

37. It follows, in my view, that no equitable interest in the property – that is to say, no interest analogous to that conferred by an option - arose under the terms of clause 5 of the lease taken in conjunction with the facsimile letter of 28 October 1997. That is because, under the terms of the right of first refusal granted in the present case, the offer contained in the facsimile letter could be withdrawn at any time before acceptance; at least, in circumstances where the lessee no longer wished to dispose of the lease. This was not a case in which, once the offer to sell the lease to the appellants had been made, it was no longer within the power of the lessee to decide (before acceptance) that it did not wish to proceed.

Whether the appeal must fail in any event

38. It would be sufficient to decide this appeal on that ground. But there are, as it seems to me, at least two other reasons why the appeal must fail. The first, and perhaps the most obvious (although it did not feature in argument before us), is that, taken together, the lease and the facsimile letter of 28 October 1997 do not satisfy the requirements of section 2 of the 1989 Act. The second is that, even if the lease and the facsimile letter of 28 October 1997 (taken together) were regarded as analogous to an option, that option was never exercised. The appellants do not claim to be entitled to purchase on the terms of the facsimile letter. In relation to both of those points it is convenient to refer to the decision of Mr Justice Hoffmann in Spiro v Glencrown Properties Ltd and another [1991] Ch 537, upon which the appellants placed some reliance.
39. The facts in the Spiro case may be stated shortly. On 14 November 1989, by an agreement in writing in two parts signed by both parties, the plaintiff granted an option, exercisable by notice in writing delivered to the plaintiff or his solicitors by 5.00 p.m. that day, under which the first defendant could purchase a property at a fixed price of £745,000. There was no dispute that that agreement did satisfy the requirements of section 2 of the 1989 Act. The first defendant gave notice, exercising the option, within the stipulated time; but failed to complete. Again, there was no dispute that, if the contract was made by the notice exercising the option (which was signed only by first defendant as purchaser), then the requirements of section 2 of the Act were not complied with. The point was identified by Mr Justice Hoffmann at page 541B-C:

"If the "contract for sale . . . of an interest in land" was for the purposes of section 2(1) the agreement by which the option was granted, there is no difficulty. The agreement was executed in two exchanged parts, each of which incorporated all the terms which had been agreed and had been signed by or on behalf of the vendor and purchaser respectively. But the letter which exercised the option was of course signed only on behalf of the purchaser. If the contract was made by this document, it did not comply with section 2."

He went on, in a passage upon which the appellants rely strongly, to say this, at page 541C-F:

"Apart from authority, it seems to me plain enough that section 2 was intended to apply to the agreement which created the option and not to the notice by which it was exercised. Section 2, which replaced section 40 of the Law of Property Act 1925, was intended to prevent disputes over whether the parties had entered into a binding agreement or over what terms they had agreed. It prescribes the formalities for recording their mutual consent. But only the grant of the option depends upon consent. The exercise of the option is a unilateral act. It would destroy the very purpose of the option if the purchaser had to obtain the vendor's countersignature to the notice by which it was exercised. The only way in which the concept of an option to buy land could survive section 2 would be if the purchaser ensured that the vendor not only signed the agreement by which the option was granted but also at the same time provided him with a countersigned form to use if he decided to exercise it. There seems no conceivable reason why the legislature should have required this additional formality."

The language of section 2 places no obstacle in the way of construing the grant of the option as the relevant contract. An option to buy land can properly be described as a contract for the sale of that land conditional on the exercise of the option."

40. If an option to buy land can properly be characterised as a contract for the sale of that land conditional upon the giving of a notice by the grantee and the satisfaction of such other conditions as may be prescribed in the agreement which contains the grant it must follow, as Mr Justice Hoffmann held in the Spiro case, at page 546G, that:

" . . . the grant of the option was the only 'contract for the sale or other disposition of an interest in land' within the meaning of the section [section 2 of the 1989 Act] and the contract duly complied with the statutory requirements."

The same result would follow in a case where the option contract was made before section 2 of the Act came into force.

41. The obstacle which Mr Justice Hoffmann had to surmount in the Spiro case in order to reach, at page 546G, the result which, at page 541C, he had described as "plain enough . . . apart from authority" was the characterisation of an option, by Lord Herschell, Lord Chancellor, and Lord Watson in their speeches in Helby v Matthews [1895] AC 471, at pages 477 and 479-80, as an irrevocable offer which does not become a contract for the sale of land until it has been accepted by the notice which exercises the option. Support for that characterisation was, at first sight, to be found in speeches in the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, see at pages 945-946. It is, of course, also the characterisation which Mr Justice Street favoured in the Australian case of Mackay v Wilson (1947) 47 S.R. (NSW) 315, in the passage at page 325 to which I have referred. It may be said to have received the approval of this Court in Pritchard v Briggs [1980] Ch 338, at pages 389 and 423. If that were the correct analysis, then the contract would be found in two documents: (i) the option agreement, which contained the irrevocable offer and (ii) the notice exercising the option, which (on this analysis) was to be treated as the acceptance of that offer. The second of those documents did not satisfy the requirements of section 2 of the Act; with the result that no contract was made.
42. It is unnecessary, in this judgment, to examine in detail the reasoning which enabled Mr Justice Hoffmann, in the Spiro case, to reach the conclusion that, in Helby v Matthews, Lord Herschell, Lord Chancellor, and Lord Watson "were not using 'offer' in its primary sense, but, as often happens in legal reasoning, by way of metaphor or analogy". Put shortly, he explained that, although the analogy of an irrevocable offer was a useful way of describing the position of the grantee (or purchaser) between the grant and the exercise of the option, the analogy was of little assistance in relation to the position of the grantor (or vendor) – see, at [1991] Ch 537, 543E:

"The effect of the 'offer' which the vendor has made is, from his point of view, so different from that of an offer in its primary sense that the metaphor is of little assistance".

He summarised the position in a passage at page 544G-H:

"The purchaser's argument requires me to say that "irrevocable offer" and "conditional contract" are mutually inconsistent concepts and that I must range myself under one or other banner and declare the other to be heretical. I hope I have demonstrated this to be a misconception about the nature of legal reasoning. An option is not strictly speaking either an offer or a conditional contract. It does not have all the incidents of the standard form of either of these concepts. To that extent it is a relationship sui generis. But there are ways in which it resembles each of them. Each analogy is in the proper context a valid way of characterising the situation created by an option. The question in this case is not whether one analogy is true and the other false, but which is appropriate to be used in the construction of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989."

43. Nothing in this judgment is intended to cast doubt on the conclusion reached by Mr Justice Hoffmann in the Spiro case, or on the reasoning which led him to that conclusion. In so far as it is material, I respectfully agree both with the conclusion and with the reasoning. But that is of no assistance to the appellants in the present case.
44. For the reasons explained in Pritchard v Briggs [1980] Ch 338, the right granted by clause 5 of the 1984 lease does not have the characteristics of an option. There is no analogy, in the present case, between the right granted by clause 5 and either an irrevocable offer or a conditional contract. If (contrary to the views which I have already expressed) the right granted by clause 5 of the 1984 lease were "converted into an option" (to adopt the phrase used by Lord Justice Templeman in Pritchard v Briggs at page 418C-E) by the facsimile letter of 28 October 1997, then the terms of the option would not be found in clause 5 alone; the terms of the option (including, in particular, the price payable upon the exercise of the option) would be found in clause 5 and the facsimile letter, taken together. But in that case, even if an option is regarded as a conditional contract rather than as an irrevocable offer, the terms of the relevant agreement were not themselves formulated until after section 2 of the 1989 Act came into force. There is no reason as it seems to me – and no reason is advanced in the Spiro case, in which Mr Justice Hoffmann did not need to address the point – why, in a case where the terms of the option relied on have not been formulated at the date when section 2 of the Act came into force, the requirements of that section should not apply.
45. Further, of course, if an option is regarded as a conditional contract, then the contract becomes unconditional by a notice given in accordance with its terms. A conditional contract cannot become unconditional by the service of a notice purporting to purchase upon some other terms. The Spiro case is no authority for the proposition that an option can be exercised by a notice proposing terms which differ from the terms of the conditional contract. So if (contrary to the views which I have expressed) the right granted by clause 5 of the 1984 lease were "converted into an option" by the facsimile letter of 28 October 1997, the option was not exercised – or the conditional contract did not become unconditional – upon the sending or the receipt of the Bircham & Co letter of 18 November 1997.
46. The appellants sought to overcome the obvious difficulty posed by the incongruence between the facsimile letter of 28 October 1997 and the Bircham & Co letter of 18 November 1997 by reliance on a passage in the judgment of Lord Justice Mustill in Tuck v Baker [1990] 2 EGLR 195, 196J-K:

". . . I am not sure that the offer referred to in the Fifth Schedule [of the conveyance in which the right of pre-emption was reserved] really is an offer in the ordinary sense, which to my mind connotes a voluntary invitation by the offeror to the offeree to enter into a contractual relationship. Here the offer is not voluntary in the true sense, for the existing contractual arrangements already required the purchasers to make what is called "the offer", if they were to have the opportunity to sell their land to a third party. I see the "offer" as simply being part of the contractual procedure which must be gone through if the purchasers are to carry out a sale. As such, it is a signal to the vendors that their right of pre-emption has become available, and for the reasons already stated there is nothing in the conveyance to prevent the purchasers from recalling this signal and stopping the procedure in its tracks if the vendors have not already availed themselves of it."

It may be that the explanation for Lord Justice Mustill's reluctance to describe the letter sent by the purchasers' solicitors in that case as an "offer" lies in the fact that – so far as can be seen from the report (which may not be complete) – that letter did not, itself, specify the price which the purchasers (as grantors of the right of pre-emption) were willing to accept. It seems that the price may have been prescribed (perhaps by reference to a valuation formula) by provisions in the Fifth Schedule to the conveyance. So understood, the right under consideration in Tuck v Baker was a right of pre-emption strictly so called, rather than a right of first refusal.

47. Be that as it may, I confess that it never became clear to me, in the course of argument, how the appellants sought to obtain assistance by describing the facsimile letter of 28 October 1997 as "a signal that the right of pre-emption has become available" rather than as "an offer"; nor why it was said to make any difference, in the present case, that the facsimile letter was "part of the contractual procedure which must be gone through if the purchasers are to carry out a sale." As I have already indicated – and as appears from the passage which I have just set out – the decision in Tuck v Baker was that the purchasers could withdraw from the contractual procedure initiated by their solicitors' letter. Further, as all the relevant events had taken place before the 1989 Act was enacted, the requirements of section 2 were not in point. This Court, in Tuck v Baker, did not have to address the question whether, if any agreement had been reached in that case (which it was not), those requirements would have been satisfied. In my view the question whether the letter from the purchasers' solicitors in Tuck v Baker did or did not have the characteristics of a contractual offer is of no assistance in the present case. The facsimile letter of 28 October 1997 – which is the relevant document in the present case – clearly does have those characteristics.

Conclusion

48. For the reasons which I have set out I would dismiss this appeal.

SIR CHRISTOPHER STAUGHTON:

49. I agree that this appeal must be dismissed. No contract which complied with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 was concluded when Bircham & Co. sent their faxed letter of 18 November 1997, for one of two possible reasons. The first is that if it is said to be an acceptance, it was not a clean acceptance.
50. Alternatively, there was no offer for Bircham & Co. to accept in terms of contractual formation, since what Worrell Holdings had sent was not an offer in that technical sense. The result is the same in either case.
51. But it is said that the Trustees acquired a proprietary interest which they could enforce in equity. They can only have acquired such an interest if and when they became able to compel the lessees to transfer the property. That can have happened, at the earliest, only when there was tacit acquiescence by Messrs Portrait and Worrell Holdings Ltd in the terms proposed by the Trustees. But that, if it had any effect in law, must have done so as a contract. I do not see how otherwise it could create or confer a proprietary interest. And as a contract it failed to achieve that result, by reason of section 2.

LORD JUSTICE SCHIEMANN:

52. I also agree that this appeal must be dismissed.
ORDER: Appeal dismissed with costs; costs to be subject to detailed assessment; Permission to appeal to the House of Lords refused. (Order does not form part of approved Judgment)