Erconovaal. 98 As noted above, the ‘third party’ contract in this case was concluded with a subsidiary of the grantor, incorporated for the purpose of acquiring all the grantor company’s assets and liabilities in South Africa. The court held that such transfer of the assets was a sale which triggered the right of pre-emption, even though the contract made special provision for payment in the form of ordinary shares in the subsidiary equal to the net book value of the assets and liabilities taken over. The court held that the pre-emption holder could exercise his right to buy the pre-emption property at the book value placed on it on the basis that ‘[i]f the grantor of the rights chooses to accept satisfaction of money in a form which is impossible for the grantee to match, he cannot complain if the grantee offers him the cash for which he stipulated in the bargain’. As argued before, the transaction involved should rather be regarded as a non-arm’s length transfer in the form of a company restructuring which should not trigger the right of pre- emption at all, and it should therefore not carry much weight in the present context. ▇▇▇▇▇ J of the Transvaal Provincial Division in the unreported case of 98 Supra note 40. Golden Lions Rugby Union v Venter99 took a stricter approach by apparently requiring an exact duplicate of the third party offer. The case concerned the Golden Lions Rugby Union’s right of first refusal to conclude a new employment contract with ▇▇▇▇▇▇, a rugby player, after expiry of his fixed term contract. The court implicitly held that the exercise of the right of first refusal was precluded by the inclusion of unique terms in an employment contract subsequently concluded between Venter and the Natal Rugby Union. The court held that the Golden Lions Rugby Union could not match the terms offered by the Natal Rugby Union in respect of the living, training and working environment of the player. In this regard, the court held that an exercise programme which includes training on the beach and swimming in the sea could not be matched by the Golden Lions Rugby Union and that the latter Union could not supply coaching by the same coaches employed by the third party club. Another case which reflects a strict matching approach is Soteriou v Retco Poyntons (Pty) Ltd.100 The majority stated obiter that, to use the Oryx mechanism,101 the holder must be able to ‘step into the shoes of the third party’, and suggested that this applies even in respect of the use to which the leased premises may be put.102 This is apparently consistent with the reference in the Oryx case to ▇▇▇▇▇’▇ statement that the holder must be willing to perform all the terms undertaken by the third party,103 although this was not relevant to the facts of Oryx. The minority in Souteriou took a different approach — the holder must declare unequivocally and unquali- fiedly that he intended to step into the shoes of the third party on the terms and conditions of that lease, ‘in so far as they were not inconsistent with his continued use of the premises as before.’104 There are diverging American cases on the effect of third-party contracts which are of the type foreseen by the preference agreement, but which 99 Golden Lions Rugby Union v Venter (unreported) Transvaal Provincial Division Case 2007/2000 decided on 11 February 2000. This case is discussed by ▇ ▇ ▇▇▇▇▇▇▇▇ ‘Enkele opmerkings oor spelerskontrakte in professionele spansport’ 2000 TSAR 229 at 242–3 and M M Loubser ‘Sport and competition law’ in J A A Basson & M M Loubser Sport and the Law in South Africa Service Issue 2 (August 2001) at 8–39 ff. 100 1985 (2) SA 922 (A). 101 That is, the remedy recognized in Associated South African Bakeries (Pty) Ltd v Oryx & Vereinigte Bäckereien (Pty) Ltd 1982 (3) SA 893 (A) in terms of which the holder can create a contract on the same terms as agreed with the third party by unilateral declaration. 102 935B-C. After referring to the Oryx mechanism, the court stated that: ‘There would seem to be no reason in principle why the same should not apply where a lessee of premises has a right of first refusal of a new lease. But the lease concluded with the third party must be such that the grantee of the right can step into the third party’s shoes. It is not clear that he could do so in the present case. The terms of ▇▇▇▇▇▇▇’▇ contract with CNA have not been disclosed, so that important provisions are unknown, including the duration of that lease, and the use to which the premises may be put.’ Because the terms of the third-party contract were unknown, the court merely ordered that the lessee may not be ejected as he had undertaken to fulfil the terms of the third party contract (935B–E). 103 906H. See also ▇▇▇▇▇ op cit note 6 at 266. This aspect of Oryx is also what swayed the court in Golden Lions Rugby Union v Venter supra note 99 to insist upon exact matching of the third party’s offer, even as far as the living conditions of the employee is concerned. 104 937H. contain terms that are impossible to match.105 It is a settled principle that defeat of a right of first refusal should not be allowed by the use of special, peculiar terms not made in good faith.106 An indication that terms were not imposed in good faith is the absence of a reasonable basis for distinguishing between the two offers.107 Thus it is often said that the grantor may impose any conditions that are commercially reasonable, imposed in good faith and not specifically designed to defeat pre-emptive rights. Apart from that exception and modifications necessitated by the different identity of the parties, some courts require that the holder’s offer must be a perfect match.108 Other courts have, however, allowed the exercise of the right of first refusal where the differences between the two proposed contracts are not substantial.109 Some courts have worded this to require only matching of the essential or material terms of the third party’s offer.110 It has also been said that, as long as the holder submits an equally desirable offer, it does not need to submit an identical offer.111 It has also been held that because the holder is stepping into the third party contract the court must consider commercial realities and allow modifications consistent with the intention of the parties to the preference agreement,112 a principle which takes into account the reasonable expectations of the preference holder.113 One reason for this opposition to a strict matching requirement is the ease with which a grantor could otherwise evade the right of first refusal by 105 See generally ▇▇▇ op cit note 25 at 7–80 – 7–81. 106 See, for example, Prince v Elm Investment Co Inc supra note 48 at 825; Brownies Creek Collieries Inc v ▇▇▇▇▇ Coal Mining Co 417 SW 2d 249 (Ky 1967) at 252; ▇▇▇▇▇ v Iofredo 713 NE 2d 26 (Ohio 1998); Sessel Holdings Inc v ▇▇▇▇▇▇▇ Companies Inc 949 F Supp 572 (Tenn 1996); West Texas Transmission LP v Enron Corporation 907 F 2d 1554 (5th Cir 1990). 107 West Texas Transmission LP v Enron Corporation supra note 106. In Prince v Elm Investment Co Inc supra note 48 at 825 the court required the grantor/seller to justify the unique features of the third party contract according to ascertainable commercial standards given that it was a commercial contract. The court also gave the example of a third party offer which includes a house which the seller intends to use as a personal residence. In this regard, it said, the seller’s personal preference might be eminently reasonable. But if the seller intended to use the house as a rental property, an explanation in commercial terms is probably required to meet the reasonableness standard. 108 See, for example, Minar v ▇▇▇▇▇ 50 NW 2d 300 (Minn 1951); Sessel Holdings Inc v ▇▇▇▇▇▇▇ Companies Inc supra note 106; ▇▇▇ op cit note 25 at 7–80–7-81. An example of the modifications necessitated by the different identities of the parties would be a change of the choice of law provision to reflect the fact that both grantor and holder reside in the same state, whereas the third party contract chose the law of the third party’s state. Some decisions go further by not requiring commercial justification for the unique term. See, for example, ▇▇▇▇ ▇▇, in the minority in Prince v Elm Investment Co Inc supra note 48, who stated that the grantor’s decision to accept the holder as a partner in property development in the place of the third party buyer remains a personal one upon which the court cannot impose an objective standard. 109 See, for example, Prince v Elm Investment Co supra note 48; ▇▇▇▇▇ v ▇▇▇▇▇▇▇ supra note 106; Brownies Creek Collieries Inc v ▇▇▇▇▇ Coal Mining Co supra note 106; ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇ 539 NE 2d 856 (Ill App 1989). See also ▇▇▇ op cit note 25 at 7–80. 110 Hallmark Builders Inc v Hickory Lakes of ▇▇▇▇▇▇▇ Inc 444 So 2d 1047 (Fa 1984); ▇▇▇▇▇ v ▇▇▇▇▇▇▇ supra note 106. In the latter case, the holder was not required to match the third party’s undertaking to use a certain corporation to do remedial work to the property as such term was non-material and peculiar. 111 ▇▇▇▇▇ v ▇▇▇▇▇▇▇ supra note 106 at 28. 112 Arden Group Inc v ▇▇▇▇▇ 45 Cal App 4th 1409 (Cal App 1996) at 1414. The court allowed tenants to exercise their right of pre-emption where the only differences between the two offers were those made necessary by the fact that the tenants intended to continue to use the property as before as a gas station, whereas the third party purchasers proposed to remove the gas station and clean up the property. For a discussion of the case, see ‘Leases: Right of first refusal properly exercised’ January 1998 Real Estate Law Report 5. 113 C ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Associates v CIDCO 184 Cal App 3d 55 (Cal App 1986) at 72. including unique or peculiar terms. That the holder need only submit an equally desirable offer and not an identical offer is said to be ‘axiomatic’.114 The fact that strict matching may sometimes thwart the holder’s reasonable expectations as to the circumstances under which she would have been able to exercise her right is also relevant.115 On the other hand, requiring an unqualified acceptance is said to guarantee the grantor that he will receive the benefit of the bargain under which he agreed to relinquish his interests,116 so that the terms of the contract involved remains his exclusive prerogative, as long as he acts in good faith.117 However, a number of the cases which require strict matching could also have been decided on the basis that the modification in question was clearly substantial, so that it was not necessary to lay down a principle of strict duplication.118 The German Civil Code provides in § 466 that if the third party has undertaken a subsidiary obligation119 which the pre-emption holder cannot perform, the holder may pay the value of such performance (being the value at the time of exercise of the right).120 If the subsidiary obligation cannot be valued in money, exercise of the right is precluded, unless the holder can prove that the third party contract would also have been concluded without such subsidiary obligation.121 The object of this provision is to ensure that the grantor is not worse off when contracting with the holder instead of the third party.122 The provision ensures that the grantor is free to decide on the terms of the sale, although he may lose the benefit of certain less important subsidiary obligations.123 At the same time, § 466 BGB aims to prevent evasion of the right of pre- emption.124 114 ▇▇▇▇▇ v ▇▇▇▇▇▇▇ supra note 106 at 28. 115 Cf C ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Associates v CIDCO supra note 113 at 72. 116 West Texas Transmission LP v Enron Corporation supra note 106 at 1565. 117 ▇▇▇▇▇ Meadow-View Corp v Wilde 575 P 2d 1053 (Utah 1978). 118 See, for example, Sessel Holdings Inc v ▇▇▇▇▇▇▇ Companies Inc supra note 106 (in which the holder attempted to modify a provision of the third party agreement stating that shares acquired were solely for the purchaser’s own investment and not for resale or distribution); West Texas Transmission LP v Enron Corporation supra note 106 (in which the court held that the holder’s attempt to exercise its right without accepting a requirement of FTC approval in the third party contract would substantially vary the terms of the third party contract (1565)). In addition, ▇▇▇▇▇ v ▇▇▇▇▇ supra note 108, which also required strict duplication, was clearly wrongly decided. The court incorrectly held that the holder did not validly accept ‘the terms of the option offer’. A proper analysis of the facts reveals that the grantor did not make any offer because the holder was never informed of the terms of the third party contract; thus there was no offer to accept. The grantor should not be allowed to sell to a third party until the terms of its offer has first been put before the holder (see further Naudé op cit note 5 at 357–60; ▇▇▇▇ ▇ ▇▇▇▇▇ 1929 OPD 137 at 145). 119 Nebenleistung. 120 § 466(1) BGB. See also ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 4. 121 § 466(2) BGB. It would be difficult for the holder to prove that the contract would have been concluded without the obligation in question. See ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 5. 122 ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 3. 123 ▇▇▇▇▇▇▇▇▇▇ in ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ op cit note 14 at § 466 Rn 1. 124 Ibid. If the obligation which the holder cannot perform is a principal obligation,125 § 466 BGB does not apply, but the contract will then not be regarded as a sale, so that the right of pre-emption is not triggered.126 It is also said that § 466 BGB does not apply where the subsidiary performance by the third party is not undertaken in exchange for the pre-emption property, so that the grantor has no interest therein.127 In this case, the term involved does not bind the pre-emption holder due to a different section of the BGB, namely § 464(2). Such terms are regarded as ‘alien elements’ (‘Fremdkörper’) which are not part of the contract of sale.128 An example would be an undertaking by the third-party buyer to pay the costs of making projections129 where he himself instructed the company that undertook to make the projections and the company also had no connection with the grantor.130 An example of a term aimed at evasion of the right of pre-emption which would also not bind the buyer is a penalty clause which applies on resale of the pre-emption property, when the penalty clause was not necessary for the grantor’s decision to conclude the contract.131 An example of a subsidiary obligation that is regulated by § 466 is an undertaking by the buyer of a restaurant to buy its beers from the seller, a brewery.132 An example of a subsidiary obligation that cannot be valued in money is an undertaking by the third party to nurse the grantor, his uncle, when the grantor is not interested in being nursed by an outsider.133 The South African decisions which require strict matching are problematic. If one presupposes that the right of first refusal considered in Golden Lions Rugby Union v Venter134 was an enforceable restraint of trade,135 the result 125 It appears that essential terms are in view here as opposed to what South African lawyers would understand as incidentalia. 126 ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 1. 127 ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 6; cf, however, ▇▇▇▇▇▇▇▇▇▇ in ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ op cit note 14 at § 466 Rn 2. 128 ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 1; § 464 Rn 6; ▇▇▇▇▇▇▇▇▇▇ in ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ op cit note 14 at § 466 Rn 1; § 463 Rn 20. 129 Projektierungskosten. 130 ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 464 Rn 6. 131 ▇▇▇▇▇▇▇▇▇▇ in ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ op cit note 14 at § 463 Rn 20, with reference to OLG Stuttgart OLGR 2001, 145. 132 ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 2; cf BGHZ 102, 237, 242. 133 RGZ 121, 137, 140; ▇▇▇▇▇ in ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ op cit note 15 at § 466 Rn 5; ▇▇▇▇▇▇▇▇▇▇ in ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ op cit note 14 at § 466 Rn 2. 134 Supra note 99. 135 ▇▇▇▇▇▇▇ argues that such an agreement should normally be regarded as an unreasonable and unenforceable restraint of trade which unduly restricts an employee’s freedom to work where he pleases (op cit note 99 at 8–39, 8–40, 8–45; cf Prinsloo op cit note 99 at 242–3). A full consideration of this issue is beyond the scope of this article. See further N
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Sources: Preference Agreements, Preference Agreements