Pre-emption agreements and the myth of the “trigger event” as any manifestation of a decision to sell: a response to Deeksha Bhana

The default construction of pre-emption agreements proposed by Bhana is heavily influenced by the assumption that every contract of pre-emption entails that upon occurrence of a 'trigger event' an enforceable obligation to make an offer arises. As already noted, in Bhana’s construction, any manifestation of a desire to sell should amount to such a trigger event. Her assumption is mistaken. As argued in detail elsewhere (Naude 2004 South African Law Journal 636), two types of rights of pre-emption should be recognized when formulating residual rules for preference agreements / pre-emption agreements which contain an obligation not to contract with a third party first. As far as residual rules are concerned, any lesser manifestation of a desire to sell should only trigger a right to buy where the price at which the holder may buy is predetermined in the pre-emption contract itself (including by the creation of some mechanism for future determination of the price). This would be the case, for example, where the holder has a right to buy at a price to be determined by a third party when the grantor decides to sell. In that case, the grantor has no interest in sounding out the market. This type of (rare) right of pre-emption amounts to a conditional option, the condition being a manifestation of a decision to sell. But where the price is not pre-determined there are important policy reasons why only a contract with or offer to a third party in breach of the right of pre-emption should trigger the holder's right to buy. Inter alia, the grantor has a legitimate interest in sounding out the market first by soliciting offers from third parties and negotiating with third parties etc in order to determine the best possible price available, as long as the grantor does not offer to contract with or contracts with a third party first, but gives the holder the first chance to match a price offered by a third party for example. There are no reported South African cases in which a holder was entitled to exercise a right of pre-emption upon a lesser manifestation of a desire to sell. The suggestion in Soteriou v Retco Poyntons that "refusal imports an offer" to be made once the grantor desires to contract was only obiter as in that case the grantor did contract with a third party first without giving the holder a chance to contract first