The late Mr Blackwell was diagnosed with an inoperable brain tumour in 2000.  He decided to lease his farm to his neighbours and grant a right of first refusal.  In 2004, he renewed the lease; the farm's valuation was $1.8 million; and the right of first refusal was replaced with an option to purchase at $1.5 million.  The parties informally agreed that the option would not be exercised while Ross lived.  Edmonds Judd was the solicitor for both parties.

In 2005, the option to purchase at $1.5 million was extended to 30 April 2010.  From 2008, Ross required full-time residential care.  In 2010, Ross agreed to renew the lease and extend the option to 30 April 2016. His brothers intervened and the lease was not renewed. The neighbours then wished to exercise the option, but Ross was alive and the agreed option price was now less than half the market value.

The neighbours sought specific performance of the option.  The High Court and Court of Appeal granted specific performance in relation to the purchase despite arguments from Ross’ brothers that Ross either lacked capacity at the time the transactions were executed or that the agreements constituted unconscionable bargains.

The Supreme Court disagreed with the Court of Appeal that Ross' unwavering intention was to sell the farm at $1.5 million - while Ross did intend to benefit his neighbours at his own detriment, limits were set on this benefit: the original discount of only 16.67% from the market value for the first three years and the reversion to market value after three years.

The Court held that, if he had received competent advice, Ross would have included a condition (in place of the informal understanding) that the option not be exercised in his lifetime. He would, however, have agreed after the first three year period to an exercise price at a discount to market value of 15-25%.

The market value as at 2010 was $3,222,500.  Given Ross’ concern about affordability, the Court considered a 20% discount was appropriate.  This meant a proved loss of $1,000,000 above what the neighbours had paid and orders were given for the neighbours to pay this sum with interest dating back to the 2010 purchase.

See Court decision here.