The issues in this appeal and cross-appeal arise out of two agreements (the Sale Agreements) entered into on 22 July 2011 between the respondents, Mr Dieter Siewert and Mrs Lieselotte Siewert (together the Siewerts), on the one hand, and AT Air Group Pty Limited (AT Air), on the other. The first of the two agreements (the Main Sale Agreement) related to the sale by the Siewerts to AT Air of the issued share capital of Wingaway Air Pty Limited (Wingaway) and Heron Airlines Travel Pty Limited (Heron) and the second (the Avtex Sale Agreement) to the sale of the issued share capital of Avtex Air Services Pty Limited (Avtex). Before they were ordered to be wound up, Wingaway, Heron and Avtex were involved with the provision of air ambulance services to regional hospitals and area health services. Following default by AT Air under the Main Sale Agreement, the Siewerts, AT Air, Wingaway, Heron and Avtex, as well as the appellant, Aquatic Air Pty Ltd (Aquatic), entered into five further agreements on 13 October 2011 (the Securities).
Proceedings were originally commenced in the Equity Division of the Supreme Court by summons filed on 28 May 2012. The plaintiffs named in the summons were AT Air, Mr Ross Seller, Aquatic and Avtex. Mr Seller is the principal mind of Aquatic and was also the principal mind of AT Air, a subsidiary of Aquatic. The defendants named in the summons were the Siewerts, Heron and Wingaway. However, in September 2013, AT Air, then in liquidation, purported to assign to Aquatic its causes of action arising out of the Main Sale Agreement. In consequence, an amended statement of claim was filed on 6 February 2013, whereby AT Air and Mr Seller were removed as plaintiffs and AT Air was joined as a defendant. By further amended statement of claim filed on 13 August 2013, Avtex was removed as a plaintiff.
By the further amended statement of claim, Aquatic sought rescission of the Sale Agreements and the Securities and, in the alternative, damages for misrepresentation. The claims were based principally on warranties given by the Siewerts in the Sale Agreements. Additional claims were based on provisions of the Securities.
After a trial lasting six days, and a further hearing of one day, a judge of the Equity Division (the primary judge) made orders to the effect of the following:
1. The Siewerts pay to Aquatic the sum of $81,486.95 (inclusive of interest) for breach of one of the Securities.
2. The purported exercise by the Siewerts of an option to purchase a property in Mosman, granted on 13 October 2011 under another of the Securities, was not valid or effective.
3. Aquatic pay the sum of $604,670.88 to the Siewerts, pursuant to an undertaking as to damages given in relation to an injunction to restrain the Siewerts from exercising a power of attorney granted by Aquatic on 13 October 2011, another of the Securities.
4. The judgments in (1) and (3) be set off, so that there was a net judgment that Aquatic pay to the Siewerts the sum of $523,183.93.
5. Aquatic pay 80 per cent of the Siewerts' costs of the proceedings.
However, the primary judge refused all other claims for relief made in the proceedings, including the claims for damages for misrepresentation and claims for rescission. His Honour's reasons for making those orders were published on 27 July 2015 [1] and 2 February 2016. [2]
Following notice of intention to appeal filed on 18 February 2016, Aquatic filed a notice of appeal on 9 March 2016. On 8 September 2016, the Siewerts filed a notice of contention in relation to that appeal. On 22 March 2016, the Siewerts filed a notice of cross-appeal. Before dealing with the issues raised by the appeal and cross appeal, it is necessary to say something about the Sale Agreements and the Securities.
[2]
The Sale Agreements
By the Main Sale Agreement, the Siewerts agreed to sell and AT Air agreed to buy the issued share capital of Wingaway and Heron for a total consideration of $2,300,000. By the Avtex Sale Agreement, the Siewerts agreed to sell and AT Air agreed to buy the issued share capital of Avtex for a price of $200,000.
The Avtex Sale Agreement was in terms substantially similar to those of the Main Sale Agreement. In particular, similar warranties were given in relation to Avtex as were given in relation to Heron and Wingaway. It is therefore unnecessary to say anything more about the terms of the Avtex Sale Agreement.
The parties to the Main Sale Agreement were the Siewerts, as Vendor, and AT Air, as Purchaser. By clause 3.1 of the Main Sale Agreement, the Vendor agreed to sell to the Purchaser and the Purchaser agreed to purchase from the Vendor the Sale Shares, a term that was defined as the shares set out in Schedule 1 to the Main Sale Agreement. Schedule 1 specified a number of shares in Wingaway and Heron. Warranty 1 in Schedule 3 further defined the Sale Shares as consisting of 100% of the issued ordinary shares in the capital of Wingaway and Heron.
Clause 3.2 of the Main Sale Agreement provided that the consideration for the purchase of the Sale Shares was $2,300,000. Annexure B to the Main Sale Agreement provided that the consideration of $2,300,000 was to be payable, as to a deposit of $200,000 and as to $800,000, described as the "Financed Amount", by 30 June 2011 or such later dates as the parties may agree. The balance of $1,300,000, described as "the Vendor Finance", was to be payable by equal monthly instalments until 30 June 2014, referred to as "Settlement".
The Siewerts acknowledged in Annexure B that the deposit of $200,000 had been paid as to $100,000, with the balance of $100,000 to be paid by 31 October 2011, and that adequate security had been given "in the form of a motor vessel (value $250,000)". They also agreed that payment of "the Vendor Finance" would be by way of equal monthly instalments with each instalment being no greater than the difference between $50,000 and any monthly payments due to any finance company in relation to the "Financed Amount". The monthly payments to the Siewerts were to include any other payments due by AT Air to the Siewerts pursuant to the Avtex Sale Agreement.
The language of Annexure B is anomalous. For example, reference is made to payment by 30 June 2011, yet the Main Sale Agreement is dated 22 July 2011. The references to payment of the deposit of $200,000 also appear to be inconsistent. The anomaly appears to have resulted from the abandonment of an agreement entered into between the same parties in February 2011 due to the purchaser being unable to raise finance in time, the details of which are not presently relevant.
Clause 4.1 of the Main Sale Agreement provided that "Completion" was to take place on the "Completion Date" or at such later time as may be agreed to by the Vendor and the Purchaser. The term Completion was defined as "completion of the sale and purchase of the Sale Shares pursuant to [the Main Sale Agreement]". Completion Date was defined as 1 July 2011, or such later date as may be agreed to by the Vendor and the Purchaser in writing. Again, the reference to 1 July 2011 was anomalous when the agreement was not made until 22 July 2011. I shall refer below to the concept of "Completion", which had some significance before the primary judge.
Clause 4.2 provided, relevantly for present purposes, that, by Completion, the Vendor must:
1. deliver to the Purchaser share certificates for the Sale Shares and duly executed transfers in respect of the Sale Shares,
2. procure that a meeting of the directors of each of Wingaway and Heron be held at which those directors were to resign, revoke authorities in respect of the operation of bank accounts and grant new authorities effective from Completion, revoke all current powers of attorney and approve the transfer of the Sale Shares,
3. procure, where required by the Purchaser, the delivery of resignations of the secretary and public officer of each of Wingaway and Heron, effective from Completion,
4. cause to be delivered to the Purchaser books and account records and documents of each of Heron and Wingaway.
Some of these steps were completed by the Siewerts contemporaneously with the signing of the Main Sale Agreement. They also completed the same steps in relation to Avtex at the same time. In particular, Mr Siewert resigned as a director of Heron, Wingaway and Avtex. Mr Seller was appointed as the only director of each of those companies. However, the payment of the "Financed Amount" of $800,000 contemplated by Annexure B was not paid at that time. Further, the Siewerts did not relinquish control of the bank accounts of Wingaway, Heron and Avtex at that time.
By cl 5.1 of the Main Sale Agreement, the Vendor warranted and represented to, and agreed with, the Purchaser "in respect of the period from the Balance Sheet date in the Accounts 31 December 2010 until Completion" that various things would not be done in relation to Wingaway and Heron, except with the prior written consent of the Purchaser. That reference to accounts as at 31 December 2010 is also anomalous, but nothing turns on it.
Section 6 of the Main Sale Agreement dealt with "Warranties and Representations". The term Warranties was defined as meaning the representations and warranties in cl 6.1, read with Schedule 3. Under cl 6.1, the Vendor warranted and represented to the Purchaser in accordance with the warranties and representations set out in Schedule 3 to the Main Sale Agreement. In the Warranties, Wingaway and Heron are collectively defined as "the Company". Schedule 3 contained some 45 separate warranties. In the further amended statement of claim, Aquatic placed reliance on some 16 of the Warranties the terms of which are set in Schedule 1 to these reasons. However, for the purposes of the appeal, the only warranties relied on by Aquatic were Warranties 29 and 44.
Warranty 29 was in the following terms:
"29. The provisions for Tax included in the Accounts are sufficient to cover in full all Tax for which the Company was as at the relevant balance sheet date or at any subsequent time may have become or may become liable to pay in respect of or by reference to the period ended on the balance sheet date in the Accounts or any prior period."
The term Tax was defined, relevantly, as including goods and services taxes on or with respect to receipts, sales, turnover, production, consumption, use, transfer, ownership, occupation, franchise, value, value added or personal property. The term Accounts was defined as the accounts of each of Wingaway and Heron "contained in Schedule 2". Schedule 2 contained the following:
"Accounts as at 30 June 2011 of, Wingaway, and Heron, as prepared by PJ Russell & Associates and provided to the Purchaser."
It is common ground that, as at 22 July 2011, when the Main Sale Agreement was executed, no accounts as at 30 June 2011 for either Heron or Wingaway had been prepared by PJ Russell & Associates or provided to the Purchaser. I shall address below the question of whether any documents were brought into existence after 22 July 2011 that would satisfy the term "Accounts" as used in the Main Sale Agreement.
Warranty 44 was in the following terms:
44. All information given by the Vendor or the Vendor's professional advisers to the Purchaser or to the Purchaser's professional advisers in the course of negotiations leading to this Agreement and Completion and the facts set out in the schedules to this Agreement are true and accurate in all respects. None of that information is misleading in any material particular, whether by omission or otherwise."
As will be made clear below, the further amended statement of claim did not identify any "information" that was given by the Vendor or the Vendor's professional advisers that was not true and accurate or that was misleading. That is of considerable significance in relation to a claim based on Warranty 44.
Clause 6.2 of the Main Sale Agreement provided that each of the Warranties was to be treated as a separate Warranty in respect of each statement contained in Schedule 3 and that the interpretation of any such statement was not to be restricted by reference to, or inference from, any other such statement. Importantly, cl 6.6 provided that the Vendor represented and warranted that each of the Warranties would be true and correct both at the time of execution of the Main Sale Agreement and immediately preceding Completion, as if made at each of those times, respectively.
By cl 6.9 of the Main Sale Agreement, the Vendor acknowledged and agreed that it had given the Warranties to the Purchaser with the intention of inducing the Purchaser to enter into the Main Sale Agreement and that the Purchaser had entered into the Main Sale Agreement on the basis of and in full reliance on such warranties and representations. By cl 6.9, the Vendor also agreed to indemnify the Purchaser against any liabilities, damages, losses, costs and expenses that the Purchaser suffered or incurred as a consequence of breach of any of the Warranties.
[3]
The Securities
By October 2011, of the Deposit of $200,000, the "Financed Amount" of $800,000, and the balance of $1,190,000, only $310,000 had been paid. Following the threat of enforcement action, further negotiations between the Siewerts and Mr Seller resulted in arrangements to the effect that the purchase price under the Main Sale Agreement would be reduced by $700,000 in return for the transfer to the Siewerts of the "equity" of Aquatic in an apartment situated in Pearl Bay Avenue, Mosman (the Mosman Property). The Mosman Property, which was owned by Aquatic, was thought to have a value of $2,500,000 but was subject to a mortgage to National Australia Bank Ltd (NAB) to secure indebtedness of $1,800,000. The purchase price was to be further reduced by the proceeds of the sale of a motor vessel, by at least $100,000, up to $170,000. The remaining balance of the price of $1,190,000, after the appropriation of the sum of $110,000 from bank accounts of the aviation companies, was to be paid by AT Air by 30 June 2014 by equal monthly payments of $30,000 each. Those payments were to be guaranteed by Wingaway and Heron.
Those arrangements were implemented by the execution on 13 October 2011 of the Securities, which consisted of the following:
Security Agreement between Aquatic, Wingaway, Heron, AT Air and the Siewerts (the Security Agreement);
Irrevocable Company Power of Attorney granted by Aquatic in favour of the Siewerts (the Power of Attorney);
Call Option granted by Aquatic in favour of the Siewerts (the Call Option);
Fixed and Floating Charge by Wingaway and Heron in favour of the Siewerts (the Charge); and
Share Mortgage granted by AT Air in favour of the Siewerts over the shares in Wingaway and Heron (the Share Mortgage).
The Security Agreement recited that AT Air had not paid part of the purchase price under the Main Sale Agreement and that AT Air had agreed to mortgage its shares in Wingaway and Heron to the Siewerts as security for the payment of the balance of the purchase price. Wingaway and Heron were to guarantee the performance by AT Air of its obligations under the Security Agreement and each of Wingaway and Heron agreed to grant a fixed and floating charge over their assets and undertakings in favour of the Siewerts as security for their guarantee. No question was raised concerning Heron and Wingaway giving financial assistance in connection with the purchase of their shares.
By cl 3.1 of the Security Agreement, the Siewerts acknowledged that they had received the sum of $310,000 from AT Air on account of part payment of the purchase price under the Main Sale Agreement. By cl 3.2, the parties acknowledged and agreed that AT Air was indebted to the Siewerts in the amount of the Secured Money on account of the delayed payment of the purchase price. The term Secured Money was defined as $1,190,000 (being the remainder of the purchase price payable), interest on any part of the Secured Money remaining unpaid from time to time, and any other money and amounts payable to the Siewerts under the Security Agreement, the Main Sale Agreement and any other related document. By cl 3.3(1), the Secured Money was to be paid in full by equal monthly instalments of $30,000 with the first instalment payable on 31 October 2011 and the remainder was to be paid by 30 June 2014. Clause 3.4 provided that interest was to be payable only upon non-payment in accordance with cl 3.3.
Clause 4 of the Security Agreement provided for an irrevocable and unconditional guarantee by each of Wingaway and Heron of payment of the Secured Money by AT Air and performance by AT Air of all the obligations, undertakings and provisions contained in or implied by the Security Agreement, the Main Sale Agreement, the "Share Mortgage" and any related agreement. The term "Share Mortgage" was not defined. However, on 13 October 2011 in an agreement titled "Share Mortgage", AT Air granted a mortgage to the Siewerts over its shares in Wingaway and Heron to secure all of the obligations imposed on AT Air under the Main Sale Agreement, the Security Agreement and the Charge.
Section 5 of the Security Agreement dealt with the Mosman Property. Clause 5.2 referred to the grant by Aquatic, on the date of the Security Agreement, of the Power of Attorney with respect to the Mosman Property in the form set out in an annexure to the Security Agreement. By cl 5.3, Aquatic acknowledged and agreed that, under the Power of Attorney, the Siewerts would:
appoint a real estate agent with respect to the sale of the Mosman Property,
list the Mosman Property for sale,
attend to the sale of the Mosman Property on such terms as the Siewerts thought fit, and
deal with NAB in relation to the discharge of the mortgage in favour of NAB over the Mosman Property on settlement of the sale of the Mosman Property.
The Siewerts agreed to use their reasonable endeavours to sell the Mosman Property for a purchase price of $2,500,000 but, at their absolute discretion, could sell the Mosman Property for less than that amount, provided that the mortgage to NAB was discharged on completion of the sale.
Clause 5.5 of the Security Agreement provided that the proceeds of sale of the Mosman Property were to be dispersed:
first, in satisfaction of any costs payable by the Siewerts in connection with the sale,
secondly, to NAB on account of the amount secured by its mortgage, and
finally, the balance to the Siewerts on account of the Secured Money.
Aquatic acknowledged and agreed that it was not entitled to any of the proceeds of sale of the Mosman Property.
By cl 5.6, the balance of the purchase price payable by AT Air to the Siewerts was to be reduced from $1,990,000 to $1,290,000. That reduction was said to be in consideration of Aquatic complying with cl 5 of the Security Agreement. By cl 7.6, the balance of the purchase price payable by AT Air to the Siewerts was to be reduced further from $1,290,000 to $1,190,000, upon the earlier of nine months from the date of the document (being July 2012) or the sale of the Motor Vessel provided for under cll 7.4 or 7.5.
Clause 5.7 of the Security Agreement provided that, from the date of the Security Agreement, the Siewerts were to pay for the following outgoings (the Outgoings) in relation to the Mosman Property:
Rates, taxes and charges, including council rates, water rates and land tax but excluding water, electricity, telephone, gas and other utility usage charges;
strata or special levies; and
the minimum monthly repayments payable to NAB under the mortgage of the Mosman Property to NAB.
Clause 5.9 of the Security Agreement provided that, on the date of the Security Agreement, Aquatic and the Siewerts were to enter into the Call Option with respect to the Mosman Property. The Call Option was to be in the form attached to the Security Agreement. Aquatic and the Siewerts executed the Call Option.
The form of the Call Option recited that Aquatic was the registered proprietor of the Mosman Property and that Aquatic had agreed to grant a Call Option over it to the Siewerts. By cl 2, Aquatic granted to the Siewerts an option to purchase the Mosman Property in consideration for the Siewerts entering into the Call Option and the Security Agreement, and on the terms and conditions set out in the contract for sale of land attached as an annexure to the Call Option (the Contract).
Clause 3 of the Call Option provided that the Siewerts may exercise the Call Option during the period commencing 43 days after the date of the Call Option and expiring on 31 October 2012. Clause 3.2 provided that, to exercise the option, the Siewerts must serve on, or provide to, Aquatic:
an exercise notice in the form attached to the Call Option;
an executed copy of the Contract; and
"where relevant", the balance of any deposit payable in accordance with the terms of that contract.
By cl 3.3 of the Call Option, the parties agreed that, on the valid exercise of the Call Option, a contract for sale in the form of the Contract was thereby formed and therefore became binding on the parties. Clause 3.4 provided that, upon exercise of the option, the Contract was deemed to come into effect and bind Aquatic and the Siewerts in accordance with its terms and that Aquatic must provide an executed counterpart of the Contract to the Siewerts within 14 days of exercise of the option.
By cl 5.2 of the Call Option, Aquatic acknowledged and agreed that the Siewerts may purchase the Mosman Property under the Call Option for any price the Siewerts might determine, provided that the purchase price was not less than the amount required to discharge the mortgage over the Mosman Property in favour of NAB. Aquatic authorised the Siewerts to amend the purchase price in the Contract, provided that the price was not less than the amount secured by the NAB mortgage. Significantly, no authority was granted to make any amendment to the Contract in relation to the deposit.
The Contract specified a purchase price of $2,500,000 and a deposit of $250,000, with a balance payable of $2,250,000. Clause 2.1 of the Contract provided that the Purchaser must pay "the deposit" to the "depositholder" as stakeholder. Clause 2.2 of the Contract provided that, normally, the Purchaser must pay the deposit on the making of the contract and that time was essential. The term "normally" was defined as "subject to any other provision of this contract". There were no other provisions of the Contract dealing with payment of the deposit.
The term depositholder was described as the Vendor's agent or, if no Vendor's agent was named in the contract, the Vendor's solicitor. The Contract contained blank spaces for the names of the Vendor's agent and the Vendor's solicitor to be inserted. Neither blank space was completed. The absence of a depositholder may indicate that the parties did not expect a deposit to be paid. However, that suggestion was not ventilated in the appeal or cross-appeal.
As contemplated by the Security Agreement, AT Air granted a mortgage to the Siewerts, by the Share Mortgage, over its shares in Wingaway and Heron. By the Charge, Wingaway and Heron granted a fixed and floating charge over their assets and undertakings to secure payment of any outstanding balance of the Secured Money.
It is relevant that Aquatic did not, by any of the Securities, undertake any obligation to meet the liability of AT Air to pay the outstanding balance of the Secured Money. Rather, by the Power of Attorney and the Call Option, a mechanism was created whereby the Siewerts were able to obtain the benefit of Aquatic's "equity" in the Mosman Property in satisfaction of the Secured Money, but without imposing a personal obligation on Aquatic to pay the Secured Account. While, by cl 5.10 of the Security Agreement, Aquatic charged its right title and interest in the Mosman Property in favour of the Siewerts to secure the proper performance of its obligations under the Security Agreement, it did not charge the Mosman Property with the payment of the outstanding balance of the Secured Money. That has a bearing on whether the Siewerts have any entitlement to the proceeds of the sale of the Mosman Property by NAB in the exercise of its power of sale under its mortgage.
[4]
The Assignment Deed
In September 2013, a deed of assignment (the Assignment Deed), was entered into by AT Air, as Assignor, Aquatic as Assignee, Mr Steven Gladman, as the liquidator of AT Air, and Mr Seller. By the Assignment Deed, the parties recited that AT Air and two others had commenced proceedings in the Supreme Court against the Siewerts and three others seeking, amongst other orders, orders that various agreements be set aside. They recited that, on 12 June 2012, the plaintiffs in those proceedings served a statement of claim setting out details of the causes of action relied on in the proceedings and that the causes of action relating to AT Air included:
"any causes of action that [AT Air] has or may have that arise out of the facts, matters or circumstances relating to the formation, performance and enforcement (and mortgagee accounting) of the [Main Sale Agreement] and/or the Securities."
Those causes of action were included in the definition of the term "the Assignor's COA". Curiously, no reference was made to the Avtex Sale Agreement in the Assignment Deed.
[5]
The Claims made in the Further Amended Statement of Claim
By the further amended statement of claim filed on 13 August 2013, Aquatic claimed a declaration that the Sale Contracts and the Securities were void ab initio or, alternatively, an order refusing to enforce them. The basis upon which that relief was claimed by Aquatic, purportedly through AT Air, was that the Siewerts had made misrepresentations that induced AT Air to enter into the various instruments that Aquatic then sought to have declared to be void ab initio or to be set aside. Aquatic relied on several alleged misrepresentations.
The principal claim was that the Siewerts made a representation to the effect that Wingaway had no liability for goods and services tax (GST) in circumstances where, in fact, Wingaway had a liability for GST of more than $2 million. That claim was based on Warranty 29 and Warranty 44, as set out above. In addition, by the further amended statement of claim, Aquatic complained that the Siewerts had failed to comply with the requirement of cl 5.7 of the Security Agreement to pay Outgoings in relation to the Mosman Property.
Relevantly for the purposes of the cross-appeal, Aquatic also asserted in the further amended statement of claim that the option granted by the Call Option had not been validly exercised by the Siewerts. In particular, Aquatic relied on the fact that no deposit was paid by the Siewerts, as required by the terms of the Call Option.
The further amended statement of claim, as relevant to the appeal, dealt with alleged misrepresentation and breach of warranty in relation to Wingaway as follows:
(16) On 22 July 2011 AT Air and the Siewerts entered into the Main Sale Agreement, whereby the Siewerts agreed to sell all of the shares in Wingaway and Heron to AT Air for $2,300,000.
(16A) By cl 6.1 of the Main Sale Agreement, the Siewerts "warranted and represented" to AT Air in accordance with Warranties set out in Schedule 3 to the Main Sale Agreement, which included warranties to the following effect:
(a) Wingaway's accounts:
(i) gave a true and fair view of Wingaway's financial position and state of affairs as at the end of 30 June 2011;
(ii) contained full provision for all liabilities and taxes;
(iii) gave full and fair disclosure of contingent liabilities whether unqualified, disputed or otherwise;
(iv) contained a full and accurate statement of all of the liabilities of Wingaway; an
(v) made sufficient provision to cover in full all tax that Wingaway was or at any subsequent time may have become liable to pay as at the end of 30 June 2011 or in respect of any prior period.
(b) Wingaway had complied with all applicable legislation relating to the carrying on of its business, including tax legislation.
(c) Wingaway had lodged all proper and requisite tax returns.
(d) All returns that Wingaway made for tax purposes were, when made and remain, correct and on a proper basis.
(e) To the best of the knowledge, information and belief of the Siewerts, Wingaway has not done or failed to do any act or omission that constitutes wholly or partly a breach of contract or a tort or a breach of statute or a breach of delegated legislation.
(Paragraph 16A defined that "warranting" and "representing" as the Wingaway Accounts Representations. The Wingaway Accounts Representations were said to arise from the Warranties set out in Schedule 1 to these reasons.)
(16C) By cl 6.9, the Siewerts acknowledged and agreed that they had made the warranties referred to in paragraph 16A with the intention of inducing AT Air to enter into the Main Sale Agreement and that AT Air entered into the Main Sale Agreement on the basis of and in full reliance on such warranties and representations.
(16D) By cl 6.9, the Siewerts agreed to indemnify AT Air against any liabilities, damages, losses, costs and expenses suffered or incurred as a consequence of breach of any of the Warranties.
(16E) The Wingaway Accounts Representations constituted conduct made in contravention of s 18 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 and/or s 12DA of the Australian Securities and Investments Commission Act 2001 (the ASIC Act) since the Wingaway Accounts Representations was conduct that was false, in that, at the time the Wingaway Accounts Representations were made, Wingaway had a liability to pay GST in a sum in excess of $2 million as at the end of 30 June 2011 and that liability was not recorded or provided in Wingaway's accounts up to the end of 30 June 2011.
(16G) AT Air relied upon the Wingaway Accounts Representations and in doing so signed and entered into the Main Sale Agreement and the Avtex Sale Agreement.
(16H) By reason of the contravention referred to in paragraph 16E, Aquatic, as assignee of AT Air's right, title and interest in "the pleaded causes of action", has suffered loss and damage.
The further amended statement of claim, as relevant to the appeal, dealt with alleged misrepresentation and breach of warranty in relation to Avtex as follows:
(22) On 22 July 2011, in reliance upon the Wingaway Accounts Representations, AT Air and the Siewerts entered into the Avtex Sale Agreement.
(22A) By cl 6.1 of the Avtex Sale Agreement, the Siewerts "warranted" and "represented" to AT Air in accordance with the warranties set out in Sch 3 to the Avtex Sale Agreement which included warranties to the following effect:
(a) Avtex's accounts:
(i) gave a true and fair view of Avtex's financial position and state of affairs as at the end of 30 June 2011;
(ii) contains full provision for all liabilities and taxes;
(iii) gave full and fair disclosure of contingent liabilities whether unqualified, disputed or otherwise;
(iv) contained a full and accurate statement of all of the liabilities of Avtex; and
(v) provided for tax sufficient to cover in full all Avtex was or at any subsequent time may have become liable to pay as at the end of 30 June 2011 or in respect of any prior period.
(b) Avtex had complied with all applicable legislation relating to the carrying on of its business, including tax legislation.
(c) Avtex has lodged all proper and requisite tax returns.
(d) All returns that Avtex made for tax purposes were when made and remain correct and on a proper basis.
(e) To the best of the knowledge, information and belief of the Siewerts, Avtex has not done or failed to do any act or omission that constitutes wholly or partly a breach of contract or a tort or a breach of statute or a breach of delegated legislation.
(Paragraph 22A defined that "warranting" and "representing" as the Avtex Accounts Representations. The Avtex Accounts Representations were said to arise from the Warranties set out in Schedule 3 to the Avtex Sale Agreement, which are virtually identical to those Warranties in the Main Sale Agreement set out in Schedule 1 to these reasons.)
(22C) The Siewerts acknowledged and agreed that they made the Avtex Accounts Representations with the intention of inducing AT Air to enter into the Avtex Sale Agreement and that AT Air entered into the Avtex Sale Agreement on the basis of and in full reliance on such warranties and representations.
(22D) By cl 6.9 of the Avtex Sale Agreement, the Siewerts agreed to indemnify AT Air against any liabilities, damages, losses, costs and expenses suffered or incurred as a consequence of any breach of any of the warranties set out in the Avtex Sale Agreement.
(22E) The Avtex Accounts Representations constituted conduct made in contravention of s 18 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 and/or s 12DA of the ASIC Act since the Avtex Accounts Representation were conduct that was false, in that, at the time of that conduct, Avtex had a liability to pay redundancy amounts of $62,102 to employees as at 30 June 2011 and that amount was not recorded or provided for in Avtex's accounts up to the end of 30 June 2011 and a liability to pay unpaid workers compensation premiums of $67,189.26 at the end of 30 June 2011 which was not recorded or provided for in Avtex's accounts up to the end of 30 June 2011.
(22F) AT Air relied upon the Avtex Accounts Representations and the Wingaway Accounts Representations and, in doing so, signed and entered into the Avtex Sale Agreement.
(22G) By reason of the contravention referred to in paragraph 22E, Aquatic, as assignee of AT Air's right, title and interest in "the pleaded causes of action", has suffered loss and damage.
The further amended statement of claim dealt with the claim in relation to Outgoings under cl 5.7 of the Security Agreement as follows:
(62) By cl 5.7 it was a condition of the Security Agreement that, from 13 October 2011, the Siewerts were to pay all Outgoings of the Mosman Property and the monthly mortgage payments to NAB secured by mortgage of the Mosman Property.
(63) The Siewerts have failed to pay any Outgoings and the payments under the NAB mortgage since 13 October 2011.
(64) The failure of the Siewerts referred to in para (63) is a breach of the Security Agreement.
(65) Since 13 October 2011, by reason of the breach referred to in para (63), Aquatic has suffered loss and damage by causing the payment of all the Outgoings and the NAB mortgage payments for the Mosman Property.
The further amended statement of claim dealt with the Call Option as follows:
(67) It was a condition of the Call Option that, if the Siewerts wished to exercise the option to acquire the Mosman Property:
* Written notice in the form provided for by the Call Option must be given,
* Any such notice must attach a sale contract in substantially the same form as the one included in the Call Option,
* The contract included in the Call Option provided for the payment of a 10 per cent deposit,
* A cheque for the deposit payable was to accompany the notice of exercise of the option.
(68) Under cover of a letter dated 17 May 2012, the Siewerts purported to serve a notice of exercise of option dated 21 February 2012.
(69) The notice of exercise of option does not conform with the requirements of cll 3.2 and 5.1 of the Call Option and is invalid in that the notice attached a contract that had no provision for a deposit and the notice was not accompanied by a cheque in payment of the deposit.
(70) The Siewerts rely on the notice of exercise of option to enable the sale of the Mosman Property to proceed.
(71) The conduct of the Siewerts alleged in the previous paragraph is a breach of the Call Option and Aquatic claims a declaration and consequential relief.
Finally, the further amended statement of claim repeated the allegations made in paras (16) to (16D) and (22) to (22D). That repetition was in aid of causes of action based on breach of contractual warranties contained in the Sale Agreements, as distinct from claims for rescission of various instruments.
[6]
Conclusions of the Primary Judge
The primary judge concluded that the Siewerts gave no warranty and made no representation to the effect that Wingaway and Heron had no liability for GST. His Honour also concluded, in any event, that any such warranty or representation would not have been false because Wingaway and Heron did not, in truth, have a liability for GST as at 30 June 2011. His Honour also concluded that it had not been established that the Siewerts had knowledge, information or belief that there was a liability for GST and no reasonable inquiry or investigation would have produced such knowledge at the time of the Sale Agreements.
Further, the primary judge concluded that any right to rescind the Main Sale Agreement or the Avtex Sale Agreement at general law for misrepresentation had been foreclosed by AT Air's election to affirm the Sale Agreements after learning of the matters that founded any claim to rescind. That result was compounded, his Honour held, by the impossibility of restitution, since both Wingaway and Heron, as well as Avtex, were in liquidation at the time of the trial. The Assignment Deed did not purport to assign any interest in the shares of Wingaway and Heron. Further, his Honour held, statutory relief in the nature of rescission was not available to Aquatic as a purported assignee from AT Air. Accordingly, his Honour concluded, all of Aquatic's claims for relief in connection with the Main Sale Agreement and the Avtex Sale Agreement failed.
The primary judge also concluded that AT Air and Aquatic, with knowledge of the nature and extent of any alleged misrepresentation, plainly elected to affirm, and not to rescind, the Securities. His Honour also held that restitution was no longer possible and that it would not be open or appropriate on discretionary grounds to avoid the Security Agreement. Accordingly, all Aquatic's claims for relief in connection with the Securities also failed.
However, the primary judge held that the obligation of the Siewerts under the Security Agreement to pay the Outgoings in respect of the Mosman Property was not dependent on any obligation of any other party and was not excused by any breach on the part of Aquatic, in the absence of an accepted repudiation. His Honour concluded, therefore, that the Siewerts were liable to Aquatic for the amounts paid by Aquatic in respect of Outgoings for the Mosman Property accruing after 13 October 2011 and that Aquatic was entitled to judgment against the Siewerts for the amount of $60,360.71, being the liabilities incurred by it in respect of Outgoings for the Mosman Property accruing on and after 13 October 2011, together with interest.
The primary judge also concluded that the purported exercise of the Call Option by the Siewerts did not conform with the terms of the Call Option and that there was no effective exercise of the option. His Honour found that, if the Siewerts elected to proceed under the Call Option, Aquatic, and not the Siewerts, was entitled to receive the purchase money. The deposit represented part of that amount. It was not at all for the benefit of the Siewerts only, but for the benefit of Aquatic, to secure performance of the contract in the event that the Siewerts, having exercised the Call Option, defaulted in performance of the ensuing contract. Therefore the requirement of the deposit could not be waived by the Siewerts. His Honour therefore concluded that Aquatic was entitled to a declaration that the option granted by the Call Option had not been validly exercised.
Having published reasons for his conclusions in relation to the claims made by Aquatic on 27 July 2015, the primary judge directed that the parties bring in short minutes to give effect to those reasons. His Honour heard further argument on 18 August 2015 concerning the appropriate orders and made final orders on 2 February 2016, for additional reasons published on that day.
In his additional reasons, the primary judge observed, that in the principal reasons, he had concluded that:
all Aquatic's claims for relief in connection with the Main Sale Agreement and the Avtex Sale Agreement had failed,
all Aquatic's claims for relief in connection with the Securities had failed,
the Siewerts were liable to Aquatic for the amounts incurred by Aquatic in respect of Outgoings of the Mosman Property accruing after 13 October 2011, and
there was no effective exercise of the Call Option.
His Honour recorded that short minutes were ultimately circulated and that written and oral submissions were exchanged, as a consequence of which a number of issues emerged, some of which required closer examination and revision of the matters to which his Honour adverted in the principal reasons. Relevantly, his Honour summarised the outstanding issues as follows:
The amount for which Aquatic should have judgment against the Siewerts in respect of Outgoings accruing after 13 October 2011 on the Mosman Property.
Entitlement to the surplus proceeds of sale of the Mosman Property, amounting to $392,370.77 together with interest thereon, which were paid into Court on 10 July 2015 by NAB following completion of the sale of the Mosman Property in exercise of the power of sale conferred by the NAB mortgage.
Whether the Siewerts were entitled to an inquiry as to damages pursuant to the usual undertaking as to damages given by Aquatic in connection with interlocutory relief granted in the proceedings restraining them from selling the Mosman Property under the Power of Attorney and re-exercising the option under the Call Option.
The primary judge held that the Security Agreement gave no equitable interest in the Mosman Property or its proceeds to the Siewerts, but only a contractual right to the proceeds of a sale under the Power of Attorney or to acquire the Mosman Property pursuant to the Call Option. Both the Call Option and the Power of Attorney expired on 31 October 2012. Since the attempt to exercise the Call Option failed and no power was exercised under the Power of Attorney, the rights of the Siewerts in respect of the Mosman Property expired on 31 October 2012. Accordingly, they had no surviving claim to the net proceeds of sale that had been paid into court.
In relation to Aquatic's claim in respect of Outgoings, the primary judge held that the liability of the Siewerts for breach of cl 5.6 of the Security Agreement was limited to the period ending on 31 October 2012 and Aquatic's claims in respect of subsequent periods failed. His Honour held that there was no evidentiary basis for any greater amount than the sum of $60,360.71 referred to in the principal reasons, which the Siewerts ultimately conceded. His Honour concluded that Aquatic was entitled to judgment against the Siewerts for $81,486.95, including pre-judgment interest of $21,126.25.
Since the claim by Aquatic in relation to the Sale Agreement and the Securities had failed, the Siewerts made a claim pursuant to the undertaking given by Aquatic. In relation to the undertaking as to damages, the primary judge observed that the injunction granted on 25 June 2012 prevented the Siewerts not only from acting upon purported exercise of the Call Option, but also from selling the Mosman Property pursuant to the Power of Attorney or re-exercising the Call Option. As both the Power of Attorney and Call Option had expired, and the purported exercise of the Call Option was ineffective, the result was that the Siewerts lost their capacity to recover the net proceeds of sale of the Mosman Property.
The primary judge considered that the amount of that loss could be quantified by reference to the outcome of the sale by NAB, adjusting for deductions that would not have been incurred in the event of a timely sale by the Siewerts. On that basis, his Honour held that the Siewerts' loss was not less than $604,670.88, for which they should have judgment against Aquatic. His Honour considered that Aquatic's judgment in respect of the Outgoings and the Siewerts' judgment in respect of the undertaking as to damages should be set off against each other, and that the proceeds of the sale of the Mosman Property should be paid out to the Siewerts in part satisfaction of the net judgment in their favour.
[7]
The Issues in the Appeal and Cross Appeal
The notice of appeal filed on 9 March 2016 contains some 23 separate grounds. A number of those grounds have been abandoned. The remaining grounds of appeal may be summarised as follows:
The primary judge erred by finding that the Siewerts did not make a representation or warranty about unpaid GST of Wingaway in relation to the Main Sale Agreement,
The primary judge erred in concluding that the Warranties in relation to the Accounts were to be severed from the Main Sale Agreement and the Avtex Sale Agreement,
The primary judge erred in concluding that Wingaway had no liability for unpaid GST as at 30 June 2011,
The primary judge erred in concluding that there was no evidence to support a claim of breach of warranty in respect of undisclosed unpaid workers compensation amounts of $67,189,
The primary judge erred in assessing the quantum of damages payable in respect of Outgoings on the Mosman Property,
The primary judge erred in concluding that the Siewerts were entitled to compensation pursuant to the undertaking as to damages, and
The primary judge erred in assessing such compensation by reference to the sale of the Mosman Property by NAB.
In their notice of contention, the Siewerts contended that the orders made by the primary judge in refusing rescission of any of the agreements in question could be sustained for additional reasons. Since Aquatic abandoned its grounds challenging the refusal of the relief of rescission, the notice of contention falls away.
The notice of cross-appeal filed on 22 March 2016 sought to challenge the conclusion of the primary judge that the purported exercise of the option granted by the Call Option was invalid and ineffective. The grounds may be summarised as follows:
The primary judge erred in failing to take into account the powers conferred by the Power of Attorney in construing the requirements for the exercise of the Call Option, and
The primary judge erred in failing to hold that, by reason of the Power of Attorney and the whole of the Security Agreement, the Siewerts had the right to exercise the Call Option without payment of a deposit.
[8]
Aquatic's Contentions
Aquatic relies on two causes of action. The first cause of action is contravention of s 18 of the Australian Consumer Law or s 12DA of the ASIC Act. The second cause of action is based on breach of Warranties 29 and 44. Aquatic no longer contends that relief by way of rescission should be granted if the appeal is allowed. It is content to rely on a claim for damages, assuming AT Air's causes of action either under s 18 of the Australian Consumer Law or for breach of contractual warranties were assignable by it to Aquatic and were effectively assigned by the deed of assignment.
Aquatic alleged that the Siewerts warranted to AT Air as follows:
The provisions for Tax included in the Accounts are sufficient to cover in full all goods and services tax for which Wingaway was at the relevant balance sheet date or, at any subsequent time, may have become or may become, liable to pay in respect of or by reference to the period entered on the balance sheet date in the Accounts or any prior period, pursuant to Warranty 29;
All information given by the Siewerts to AT Air in the course of negotiations leading to the Main Sale Agreement and Completion and the facts set out in the schedules to the Main Sale Agreement are true and accurate in all respects and none of that information is misleading in any material particular, whether by omission or otherwise, pursuant to Warranty 44.
[9]
The Accounts
The difficulty with a case based on Warranty 29 is that, at no stage, were there any documents that satisfied the definition of "Accounts". In the absence of anything that could be described as the "Accounts", there is an insurmountable difficulty for the claim made by Aquatic that there was a breach of Warranty 29 because the provisions for Tax included in the Accounts were not sufficient to cover in full all Tax for which Wingaway was, as at 30 June 2011 or at any subsequent time may have become or may become liable. It is desirable to say something more about the "Accounts".
[10]
Warranty 29
The critical conclusion reached by the primary judge in relation to the claims that there was a breach of Warranty 29 in relation to the Accounts is that there was no document that satisfied the definition of Accounts, as that term was defined in the Main Sale Agreement and in the Avtex Sale Agreement. It was common ground that nothing existed as at 22 July 2011 that could satisfy that definition. Accordingly, there could be no warranty with any effect as at 22 July 2011, that the provisions for Tax included in the Accounts were sufficient to cover in full all Tax for which Wingaway was, at the relevant balance sheet date, or at any subsequent time, may have become or may become liable to pay in respect or by reference to the period ending on the balance sheet date in the Accounts or any prior period.
Aquatic, however, sought to place reliance on cl 6.6 of the Main Sale Agreement, which provided that the Siewerts represented and warranted that each of the Warranties would be true and correct both at the time of execution of the Main Sale Agreement and immediately preceding Completion, as if made at each of those times, respectively. Before the primary judge, Aquatic had contended, in relation to a claim that was rejected by his Honour and not pressed on appeal, that Completion took place on 22 July 2011. His Honour concluded that, consistently with the contentions of the Siewerts, Completion occurred on 13 October 2011, when the parties entered into the Securities.
Clause 4.2 of the Main Sale Agreement provided that, on Completion, the Siewerts, as Vendor, were required to take a number of steps. Some of those steps were in fact taken on 22 July 2016. However, completion of a sale and purchase would almost invariably be understood as meaning the performance not only by the seller of the seller's obligations under the sale, but also the performance by the buyer of the buyer's obligations under the purchase. That is to say, ordinarily, the obligations of vendor and purchaser are interdependent. The purchaser is not entitled to call for performance by the vendor unless ready, willing and able to pay the price and the vendor is not entitled to call for payment of the price unless ready, willing and able to give the purchaser ownership of the property sold. Of course, that position may be varied consensually by the seller giving credit to the buyer for the payment of the purchase price. That is effectively what happened when the Securities were executed.
In the present case, the question of payment of the purchase price is complicated by the fact that, under the Main Sale Agreement, the consideration for the Sale Shares was broken into three parts:
deposit of $200,000,
the Financed Amount of $800,000, and
the Vendor Finance of $1,300,000.
It is clear that the Siewerts were intending to give credit to AT Air in respect of the sum of $1,300,000 for Vendor Finance. However, the deposit of $200,000 and the Financed Amount of $800,000 were clearly intended to be paid on Completion, that is to say, by 30 June 2011 or such later date or dates as the parties may agree. Clearly, payment could never have been made pursuant to the Main Sale Agreement by 30 June 2011, since the Main Sale Agreement was not entered into until 22 July 2011. The parties must therefore be taken to have agreed for the payment to be made at some later time or times.
As appears from the Security Agreement, payment had not been made by 13 October 2011. Clearly enough, the Securities overall were intended to provide a means for the payment of the sum of $800,000 that was payable on Completion. There was no error on the part of the primary judge in concluding that Completion did not occur until 13 October 2011, when the Siewerts accepted the arrangements contemplated by the Security Agreement in lieu of the obligation to pay, on Completion, the sum of $800,000 as "the Financed Amount".
Aquatic contended that documents brought into existence after 22 July 2011 and before 13 October 2011 should be treated as "the Accounts" for the purposes of the Main Sale Agreement. In particular, Aquatic contended that, prior to 13 October 2011, Wingaway adopted accounts as at 30 June 2011 and that those accounts should be regarded as "the Accounts" for the purposes of the Main Sale Agreement. That contention must be rejected for multiple reasons as follows.
The first reason for rejecting that contention is that the language of Warranty 29 and the definition of the Accounts are not capable of operating on documents brought into existence after 22 July 2011. Warranty 29 refers only to "the Accounts". While the effect of cl 6.6 is that Warranty 29 was repeated as at 13 October 2011, Warranty 29 related only to "the Accounts" as defined in the Main Sale Agreement in cl 1.1 and Sch 2. Since there was nothing that satisfied the definition of "the Accounts" before the making of the Main Sale Agreement, Warranty 29 never had any work to do.
It is clear that the Main Sale Agreement contemplates that "the Accounts" had already been prepared as of 22 July 2011, as opposed to being yet to come into existence. As the primary judge said, the parties can hardly have intended to warrant the accuracy of accounts that had not yet been produced, the contents of which were necessarily unknown at the time of the Main Sale Agreement. That is further indicated by two clauses of the Main Sale Agreement.
First, cl 2.2 requires the Vendor to produce a certificate signed by a partner of PJ Russell & Associates, the accountants responsible for preparing the Accounts, certifying various statements about the assets and liabilities of Wingaway and Heron, as a condition precedent to performance by the Purchaser. However, there is no similar clause requiring production of the Accounts as a condition precedent to performance; rather the document appears to assume that the Accounts had already been provided, with there being no need to compel their production.
Secondly, Warranty 10 refers to "the period from the date of the Accounts to the date of the Agreement to which this Schedule forms part", the latter date being 22 July 2011. This evidently contemplates that the "date of the Accounts" precedes 22 July 2011. Therefore, given that the Main Sale Agreement's definition of the Accounts is limited to documents matching the description in Sch 2 that were in existence before 22 July 2011, the Accounts could not have subsequently come into existence.
[11]
Warranty 44
The further amended statement of claim contained no allegation that any information was given by the Siewerts or their professional advisers to AT Air or its professional advisers, in the course of negotiations leading either to the Main Sale Agreement or Completion. Indeed, there was no allegation that any information was given at all. There is therefore an insurmountable difficulty for the claim made by Aquatic that there was a breach of Warranty 44 because information was given that was not true and accurate in all respects or was misleading.
The difficulty with a case based on breach of Warranty 44 is that the further amended statement of claim contains no allegation that the Siewerts or their professional advisers provided any information that was not true and accurate or was misleading. Further, and significantly, Aquatic was unable, in the course of oral argument, to identify clearly any "information" given in the course of negotiations that could be said to have been provided in breach of Warranty 44.
[12]
Avtex
The observations made above in relation to Warranties 29 and 44 apply equally to the Avtex Sale Agreement. Further, as the primary judge found, there was no evidence of any liability of Avtex for workers compensation payments.
In any event, the absence of any reference to workers compensation liability in any documents relating to Avtex is explained by an annexure to the Main Sale Agreement. Annexure C to the Main Sale Agreement provides that the Vendor and Purchaser agree and acknowledge that an agreed amount of undistributed profits was to be distributed to the Vendors. Annexure C then provided that the balance of the undistributed profits, being $150,000, would be withheld until such time as the workers compensation audit then being undertaken was completed. Annexure C provided that, once completed, any amount payable pursuant to the audit would be deducted from the balance of the undistributed profits.
Thus, quite apart from the absence of evidence of any undisclosed liability for workers compensation, it is clear that the parties made provision for any such liability. In those circumstances, there was clearly no error on the part of the primary judge in concluding that there was no contravention of the Australian Consumer Law or breach of contractual warranty in relation to any liability of Avtex in relation to workers compensation.
[13]
Quantum of Damages
The final grounds of appeal that Aquatic relied upon concerned the primary judge's calculation of the quantum of damages payable in respect of Outgoings on the Mosman property and the assessment of damages to which the Siewerts were entitled pursuant to the undertaking as to damages. Those grounds of appeal were barely mentioned in either written or oral submissions and were only supported by mere assertion. Indeed, Aquatic's submissions regarding a purported error in calculation of the Outgoings rely on an affidavit of Mr Seller that was not before the primary judge in the trial, and its submissions regarding a purported error in the assessment of compensation pursuant to the undertaking rely on a proposition that was not put at first instance. In the absence of any substantive submissions, these grounds of appeal must be rejected.
[14]
Other Contentions
It follows from the conclusions reached above that the appeal must fail, in so far as Aquatic contends that the primary judge erred in concluding that there was no breach of warranty or contravention of the Australian Consumer Law in relation to failure to disclose liabilities of Wingaway and Avtex. It is therefore not necessary to address the other issues raised by the appeal in relation to those matters. However, since substantial argument was addressed to this Court on those issues, it is desirable to say something about them. They relate to the assignment of causes of action to Aquatic and the question of liability for GST.
[15]
Assignment
By cl 3.1 of the Assignment Deed, the Assignor assigned all of the Assignor's right, title and interest in the Assignor's COA to the Assignee and the Assignee agreed to accept the assignment of the Assignor's COA from the Assignor. Under cl 3.2, title to and risk of the Assignor's COA was to pass to the Assignee upon entry into the Assignment. Clause 3.3 provided that there was to be no requirement for a further or confirmatory assurance to be executed and the assignment of the bundle of rights referred to in cl 3.1 was to be taken to have become effective upon completion of the assignment of the Assignor's COA.
Under cl 7 of the Assignment Deed, the Assignee was required, forthwith after completion, to give notice in writing of the assignment to each of the other parties to the proceedings and provide confirmation of its compliance with that requirement to the Assignor. The Assignee was then required to take steps to be substituted for the Assignor as the first plaintiff in the proceedings and to discharge the Assignor, or be substituted for the Assignor in respect of all undertakings given by the Assignor, in the proceedings. Under cl 9, each party was required to do everything and sign and deliver all documents reasonably required by the other to give full effect to the Assignment Deed.
It is clear enough that the causes of action alleged in the further amended statement of claim of 13 August 2013 arose out of facts, matters or circumstances relating to the formation, performance and enforcement of the Main Sale Agreement and the Securities. Accordingly, they were included in the term "Assignor's COA". However, there is a question as to whether those causes of action that are still pressed on behalf of Aquatic were capable of assignment.
The further amended statement of claim has sub-headings that may be some guide to the causes of action relied on by Aquatic as having been assigned by the deed of assignment. The headings in the further amended statement of claim are as follows:
Deceit and Misrepresentation
Mosman Outgoings Claim
Invalid Call Option Notice
Wingaway Warranty Claims
Avtex Warranty Claims
While the further amended statement of claim contains the heading "Deceit and Misrepresentation", an essential element of the tort of deceit is absent from the allegations under that heading. That element is that the defendant made a representation of fact that the defendant knows is untrue or as to the truth of which the defendant is recklessly indifferent. Having regard to the findings made by the primary judge, which are not challenged, that the Siewerts reasonably believed that no liability for GST had arisen on the part of Wingaway or Heron, the tort of deceit cannot be made out. The only cause of action relied upon, therefore, is the statutory cause of action that representations were made in contravention of s 18 of the Australian Consumer Law or s 12DA of the ASIC Act.
There is considerable overlap between the allegations made under the heading "Deceit and Misrepresentation", on the one hand, and the allegations made under the headings "Wingaway Warranty Claims" and "Avtex Warranty Claims", on the other. The intention appears to have been that Aquatic relies on the causes of action described under the heading "Deceit and Misrepresentation" for relief in the nature of a declaration that the instruments are void and should be set aside or not enforced. The relief sought in relation to "Wingaway Warranty Claims" and "Avtex Warranty Claims" appears to be limited to damages.
In particular, by paras 106 and 116 of the Further Amended Statement of Claim, Aquatic alleges that, by reason of the matters pleaded, the Siewerts have breached the Warranties referred to and are liable to pay Aquatic damages for breaches of those Warranties. By contrast, in relation to "Deceit and Misrepresentation", para 59 claims that the Main Sale Agreement, the Avtex Sale Agreement and the Securities should be rescinded ab initio or an order should be made refusing to enforce them.
As noted above, the Assignment Deed does not refer to the Avtex Sale Agreement but refers only to the Main Sale Agreement and the Securities. It is difficult to see, therefore, how the Assignment Deed could have vested in Aquatic any right to prosecute the proceedings in relation to AT Air's claim to have the Avtex Sale Agreement set aside. Further, while Aquatic was a party to the Security Agreement, the Power of Attorney and to the Call Option, it was not a party to the Charge or the Share Mortgage.
Under s 237(1) of the Australian Consumer Law, a court may, on application of a person who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that was engaged in contravention of the Australian Consumer Law (the injured person), make such order or orders as the Court thinks appropriate against the person who engaged in the conduct. Under s 237(2), the order must be an order that the Court considers will compensate the injured person, in whole or in part for the loss or damage or prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person.
Under s 243, the orders that a court may make under s 237 include:
an order declaring the whole or any part of a contract made between the respondent and the injured person to be void and, if the Court thinks fit, to have been void ab initio;
an order refusing to enforce any or all of the provisions of such a contract or arrangement.
Those appear to be the provisions intended to be relied upon by Aquatic in the relief claimed in the further amended statement of claim.
The primary judge concluded that the statutory causes of action for damages under the Australian Consumer Law and the ASIC Act, as pleaded in paras 16E and 16F of the further amended statement of claim, were not assignable. His Honour considered that the relevant statutory provisions do not contemplate an award of damages in respect of loss not suffered by a party to the proceedings. His Honour held that the same principle applied to the statutory causes of action for relief in the nature of rescission or avoidance, on the basis that they too are limited to orders that will compensate a person who is a party to the proceedings and who has suffered, or is likely to suffer, damage by the contravening conduct.
Aquatic accepts that, but for the operation of s 477(2)(c) of the Corporations Act 2001 (Cth), the causes of action available to AT Air were not assignable by AT Air. However, Aquatic contends that, following the order for the winding up of AT Air, the liquidator of AT Air was able to assign causes of action that were not assignable by AT Air prior to its being wound up. His Honour concluded that, while s 477(2)(c) empowers a liquidator to assign the company's causes of action, notwithstanding the law of champerty and maintenance, that provision does not render assignable a cause of action that is not otherwise assignable. Having regard to the conclusion reached above, it is not necessary for that question to be answered in the present case. However, it is difficult to see any error in the reasoning of the primary judge. [3]
[16]
Liability for GST
Aquatic contends that the primary judge erred in examining the question of whether Wingaway had a liability for GST and erred in concluding that it did not. Aquatic relied, relevantly, on an assessment issued to Wingaway by the Australian Tax Office showing a liability for GST in an amount in excess of $2,000,000. Section 38-10(5) of the A New Tax System (Goods and Services Tax) Act 1999 relevantly provided that a supply is GST free if it is provided by an ambulance service in the course of the treatment of the recipient of the supply. His Honour concluded that Wingaway provided an ambulance service and the services it supplied were supplied to the patients it transported, in the course of their treatment, and that, accordingly, such services were exempt within s 38-10(5). No arguments were advanced on behalf of Aquatic as to why his Honour's reasoning was erroneous beyond reliance on the assessment issued to Wingaway.
Sections 105-5 and 105-15 of Sch 1 the Taxation Administration Act 1953 (Cth) provide that a liability for GST exists whether or not an assessment has been issued. Thus, the making of an assessment does not create a liability. The liability either exists or does not according to the proper construction of the GST Act. The significance of the issuing of an assessment is that, as between the relevant taxpayer and the Commission of Taxation, it is conclusive as to the existence of a liability to pay tax. However, as between entities other than the taxpayer and the Commission of Taxation, whilst it may be evidence of tax liability, it is not conclusive as to the question of whether or not another entity has a liability to pay tax.
The relevant question arose as between AT Air and the Siewerts as to whether or not, on the proper construction of s 38-10(5), either at the date of the Main Sale Agreement or the date of Completion of the Main Sale Agreement, Wingaway had a liability for GST. Having regard to the conclusion reached above, it is not necessary to examine whether his Honour erred in concluding that Wingaway had no such liability.
[17]
Cross-appeal
The Security Agreement was intended to confer on the Siewerts the means of obtaining Aquatic's "equity" in the Mosman Property, whatever that "equity" might be worth, by way of part-satisfaction of AT Air's obligation under the Main Sale Agreement to pay $800,000 of the purchase price for the shares in Wingaway and Heron. Two quite independent mechanisms were contemplated to achieve the same end.
The first mechanism was to confer on the Siewerts power to sell the Mosman Property, at whatever price they chose (provided the NAB mortgage was discharged), and to apply the surplus proceeds of sale after payment of expenses and the amount secured by the NAB mortgage towards the satisfaction of the balance of the purchase price payable by AT Air. That mechanism was not pursued by the Siewerts, since an injunction was granted restraining them from doing so.
The second mechanism was the grant of the option to purchase the Mosman Property for any price chosen by the Siewerts, so long as the price was not less than the amount secured by the NAB mortgage. The consequence was that whatever "equity" subsisted in the Mosman Property at the date of the exercise of the option granted by the Call Option would accrue to the Siewerts, subject to the terms of the Contract that was to be taken to have been entered into upon the exercise of the option.
It may be that inadequate attention was given by the drafter of the Contract, which was annexed to the Call Option. The Contract as annexed to the Call Option, provided for a deposit of $250,000, being 10 per cent of the price of $2,500,000 specified in the Contract. While the Call Option authorised the Siewerts to change the purchase price, there was no express authority given to change the provisions dealing with the deposit. While cl 3.2 of the Call Option required the balance of any deposit to be provided "where relevant", it was not suggested that that justified non-payment of the deposit that was payable under the Contract, especially where the Notice of Exercise of Option, also annexed to the Call Option, clearly contemplated provision of a "cheque for the deposit payable in accordance with the terms of the Contract".
The effect of exercise of the option to purchase the Mosman Property was that the Contract was deemed to come into existence. Clearly, Aquatic, as Vendor, had an interest in the completion of the Contract. Even if the Siewerts, as Purchaser, exercised the right given by cl 5.2(2) to amend the purchase price to an amount not less than the amount required to discharge the mortgage in favour of NAB, Aquatic had an interest in having that sale completed at that reduced price, in that, on completion, Aquatic's debt due to NAB would be extinguished by the payment of the purchase price.
That is to say, Aquatic had an interest in having the deposit paid by way of earnest to ensure compliance by the Siewerts of their obligations to pay the price under the Contract that was deemed to come into existence. No rational Purchaser would have failed to exercise the right to reduce the purchase price. However, if the Purchaser failed to do so, the excess over the amount required to discharge the mortgage to NAB would belong to the Vendor. The net effect would be that, in accordance with the terms of the Contract, the amount of the deposit would belong to Aquatic, as Vendor.
Further, in the event of default by the Purchaser, the Vendor would be entitled to the forfeited deposit up to a maximum of 10 per cent of the purchase price. Under cl 9 of the Contract, if the Purchaser does not comply with the Contract in an essential respect, such as Completion, the Vendor is entitled to terminate by serving notice. After the termination, the Vendor is entitled to keep the deposit. It would follow that the requirements of cl 3.2(2) and 3.2(3) of the Call Option, for the Purchaser to serve or provide an executed copy of the Contract, were essential conditions for the exercise of the option. Clause 5.2 of the Call Option did not allow the Purchaser not to comply with those prerequisites.
Clause 5.5 of the Security Agreement provided for the disbursement of "the proceeds of sale of the Mosman Property". On a fair reading of the whole of cl 5 of the Security Agreement, however, that refers to sale in the exercise of the Power of Attorney, as referred to in cl 5.2(1). While cl 5.9, requiring the Call Option to be entered into, is found in section 5 of the Security Agreement, it is clear enough that the rights under the Call Option were independent and alternative to the rights contemplated by cll 5.2 to 5.5 dealing with sale under the Power of Attorney. That is to say, the reference to "the proceeds of sale of the Mosman Property" in cl 5.5(1) is clearly a reference to the sale referred to in cl 5.3, which is headed "Sale of Mosman Property" and specifies the procedure to be adopted by the Siewerts to effect the sale of the Mosman Property under the Power of Attorney.
The mechanism involving sale under the Power of Attorney provided for in the Security Agreement was independent of and separate from the mechanism intended to be created by the Call Option. The primary judge did not err in concluding that, in the absence of the deposit being paid, the option was not validly exercised.
[18]
Conclusion
In the result, the appeal must be dismissed. The cross-appeal must also be dismissed. The costs of the cross-appeal would not have added very much to the costs of the appeal. In the circumstances, the appropriate order as to costs would be for Aquatic to pay 85 per cent of the costs of the Siewerts of the appeal and that there be no order as to the costs of the cross-appeal.
[19]
Schedule 1
Details of Warranties
10. The Accounts:
(a) comply with the requirements of all applicable legislation;
(b) have been prepared in accordance with accounting principles and practices generally accepted in Australia for corporations engaged in activities corresponding with the Company's activities, consistently applied, and accord with the requirements of the Corporations Act 2001 (Cth) and applicable accounting standards;
(c) have been prepared, unless and to the extent expressly stated in the Accounts, on the same basis as that applied in the accounts for the year ended 30 June 2010;
(d) give a true and fair view of the financial position and state of affairs of the Company at the balance sheet date in the Accounts and of the results for the period to which they relate;
(e) contain full provision for all liabilities, Taxes and capital commitments of the Company at the balance sheet date in the Accounts and a full and fair disclosure of all contingent liabilities (whether unquantified, disputed or otherwise);
(f) contain full provision for bad and doubtful debts, depreciation, amortisation, obsolescence of assets and any foreseeable losses as well as for all contingent liabilities which may reasonably be expected to become actual liabilities;
…
(h) contain a full and accurate statement of all the assets and all liabilities of the Company, and no Material change has taken place since the balance sheet date in the Accounts in such assets or liabilities other than those arising from carrying on business in the ordinary course and in a normal and proper manner (or as disclosed to the Purchaser in writing prior to the execution of the Agreement to which this Schedule forms part), contain a full and accurate statement of the trading results of the Company during the period to which the Accounts relate and no circumstances exist at the date of the Agreement to which this Schedule forms part in relation to the undertaking or the assets of the Company which would reduce the value of those assets below that indicated by the Accounts;
(i) are not affected by any unusual or non-recurring item
and the Company has traded profitably during the period from the date of the Accounts to the date of the Agreement to which this Schedule forms part.
11. Since the balance sheet date in the Accounts the Company has carried on business in the ordinary course and in a normal and proper manner and so as to maintain its business as a going concern; and the Company has not acquired or disposed or agreed to acquire or dispose of any asset or assumed or incurred any Material liabilities or agreed to assume to incur any Material liabilities (including, without limitation, contingent liabilities) otherwise than arising from carrying on business in a normal and proper manner in the normal course of the business carried on by the Company as at the balance sheet date in the Accounts.
12. All the assets of the Company except for changes in current assets resulting from trading in the ordinary course of the business since the balance sheet date in the Accounts are disclosed in the Accounts and are the sole and absolute property of the Company and are not subject to any mortgage, charge, encumbrance, lien or hire purchase agreement.
13. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation):
(a) all returns particulars resolutions and other documents required to be delivered by the Company to the appropriate authorities having jurisdiction in its jurisdictions of incorporation and in each jurisdiction where it is registered and in each jurisdiction where it carries on business have been duty delivered; and
(b) all statutory and other records of the Company are up to date and contain full, complete and accurate records of all matters dealt with in those records.
14. The Company will not at the Completion Date have any liability for any long service leave, sickness benefits, superannuation payments or any other payments or liabilities due to any employee or ex-employee of the Company under any industrial award or applicable legislation or any contract, agreement or arrangement other than as reflected in the Accounts or disclosed in writing to the Purchaser prior to the date of the Agreement to which this Schedule forms part.
15. There are no dividends declared and unpaid in respect of the share capital of the Company other than that referred to in Clause 5.1(c).
…
18. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation) the Company has complied with all applicable legislation relating to the carrying on of its business (including Tax legislation the Civil Aviation Safety Act and Regulations and the Protection of the Environment Administration Act 1991 (NSW) and all other State, Territorial and Federal legislation concerning the protection of the environment) and holds all licences necessary for the conduct of its business
…
26. To the best of the Vendor's knowledge, information and belief (based on ail reasonable enquiry and investigation) the Company has not done or failed to do any act being an act or omission which constitutes wholly or partly a breach of contract or a tort or a breach of statute or a breach of delegated legislation.
…
28. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation), all legal requirements and all orders, awards and requirements of any competent authority in relation to the affairs of the Company and all requirements in relation to the returns for the payment of duties and other charges payable or which may be payable in relation to the affairs and operations of the Company have been fully complied with.
29. The provisions for Tax included in the Accounts are sufficient to cover in full all Tax for which the Company was as at the relevant balance sheet date or at any subsequent time may have become or may become liable to pay in respect of or by reference to the period ended on the balance sheet date in the Accounts or any prior period.
30. Since the date of the Accounts no further actual or contingent liability to Tax has arisen or will arise prior to the Completion Date otherwise than in the ordinary course of the business of the Company.
…
35. To the best of the Vendor's knowledge, information and belief (based on all reasonable enquiry and investigation):
(a) the Company has lodged with the appropriate fiscal authorities all proper and requisite Tax returns;
(b) all returns of the Company made for Tax purposes were when made and remain correct and on a proper basis and all other information supplied to the relevant fiscal authorities for such purpose was when supplied and remains correct and on a proper basis and such returns include all returns and information which they ought to have respectively made or given and are not subject to any dispute with the relevant fiscal authorities and there is no fact or matter known to the Company which might result in any such dispute or any liability for Tax (present or future) not fully provided for in the Accounts;
(c) all returns and information made or given by the Company to any relevant fiscal authorities are correct, it has complied with all legislation relating to Tax and all Tax computations submitted by the Company have been accepted by the relevant fiscal authorities and there is no fact or matter known to the Company which might result in any such dispute or any liability for Tax (present or future) not fully provided for in the Accounts;
(d) the Company has paid all Tax for which it is liable to account to the relevant fiscal authorities on the due date for payment and is under no liability to pay any penalties or interest in connection with such liabilities and the Company has made all deductions and withholdings in respect or on account of Tax which it is required or entitled by any relevant legislation to make from any payment made by it, and where appropriate the Company has accounted in full to the relevant fiscal authorities for any Tax so deducted or withheld;
(e) except as disclosed and provided for in the Accounts, the Company will not have any liabilities as at the Completion Date in respect of unpaid or unassessed taxes or both or be or at any date in the future become subject to any such taxes on or in respect of or by reference to the profits gains or income of the Company for any period up to and including the balance sheet date in the Accounts.
…
41. By Completion the Company will have provided to the Vendors a shareholder distribution statement setting out all of the information required by paragraphs (a) to (f) of section 202-80(3) of the Income Tax Assessment Act 1997 in respect of distributions made to the Vendors during the period from 1 July 2002 up to and including the Completion Date [(and the Vendors will assist the Company to complete shareholder distribution statements in the approved form within four months of the end of the Company's current year of income)].
…
43. The Company has valid Commercial Leases as disclosed in Schedule 4 of this Agreement (the intellectual Property), in respect of its business and the Vendor or the Company have not done or suffered anything to be done nor will they pending Completion do or suffer to be done anything which has rendered or might render any of the Intellectual Property void or voidable or cause any breach of any conditions of the Intellectual Property and there are no circumstances known to the Vendor or the Company (based on all reasonable enquiry and investigation) giving rise to any claim there under, any of such result. Plus the Vendor warrants that all obligations required to be observed under the Intellectual Property including payment of rent have been complied with in full
44. All information given by the Vendor or the Vendor's professional advisers to the Purchaser or to the Purchaser's professional advisers in the course of negotiations leading to this Agreement and Completion and the facts set out in the schedules to this Agreement are true and accurate in all respects. None of that information is misleading in any material particular, whether by omission or otherwise.
45. To the best of the knowledge and belief of the Vendor, all details relating to the Company which would be material for disclosure to a prudent intending purchase of the Shares have been disclosed to the Purchaser
[20]
Endnotes
See Aquatic Air Pty Ltd v Siewert [2015] NSWSC 928.
See Aquatic Air Pty Ltd v Siewert (No 2) [2016] NSWSC 10.
See Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168 at [64]-[67] and [70]-[74].
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 24 November 2016
Solicitors:
AT Lawyers Pty Ltd (Appellant / First Cross-Respondent)
Marsdens Law Group (First and Second Respondents / First and Second Cross-Appellants)
Jones Partners (Third and Fourth Respondents / Second and Third Cross-Respondents)
Hall Chadwick (Fifth Respondent / Fourth Cross-Respondent)
File Number(s): 2016/53050
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity - Corporation List
Citation: [2015] NSWSC 928
[2016] NSWSC 10
Date of Decision: 27 July 2015
Before: Brereton J
File Number(s): 2012/169096
In May 2012, the Siewerts purported to exercise the option granted by the Call Option. However, the Notice of Exercise actually served by the Siewerts, purportedly pursuant to cl 3.2(1), attached a form of contract that provided for a price of $1,800,000 and a deposit of "$0.00". It purported to, but did not, attach a cheque in payment of any deposit. Aquatic disputed that the option was validly exercised by reason of the failure on the part of the Siewerts to pay the deposit of $250,000 provided for in the Contract. At the trial, the Siewerts contended that the deposit was security for the benefit of the Siewerts, not Aquatic, since they were to receive the whole of the purchase price of the Mosman Property (less the payment to NAB of the amount required to discharge its mortgage) and therefore payment of the deposit could be waived by them. I shall deal with that contention when dealing with the cross-appeal.
On 25 June 2012, by consent, an injunction was granted by the Supreme Court restraining the Siewerts from exercising any power under the Power of Attorney and from re-exercising the option granted by the Call Option. As a term of that injunction, Aquatic proffered the usual undertaking as to damages. The significance of the undertaking will become apparent later.
In the meantime, on 9 February 2012, having retaken control of Wingaway and Heron under the Share Mortgage, the Siewerts caused a voluntary administrator to be appointed to those companies. It appears that neither Heron nor Wingaway had assets to meet their liability under their guarantee, which was secured by the Charge, on their assets. On 25 July 2012, an order was made for the winding up of AT Air.
The second reason is that even if the definition of "Accounts" could include documents produced after 22 July 2011, there was no evidence that Wingaway ever adopted any accounts. Accounts could only be described as "Accounts as at 30 June 2011 of Wingaway" if they were in fact adopted by the relevant corporate entity as accounts of the corporate entity. There was no evidence that that occurred prior to 13 October 2011, or at all prior to the liquidation of Wingaway. Mr Siewert asserted in an affidavit sworn by him that no accounts for 30 June 2011 had been prepared for Wingaway or Heron or provided to AT Air by PJ Russell & Associates or at all.
Mr Seller accepted in cross-examination that, as at 22 July 2011, there were no accounts for Wingaway as prepared by PJ Russell & Associates for the period ending 30 June 2011 available. He also agreed that such accounts were not provided to him as at that date. However, he asserted that the Accounts referred to in the Main Sale Agreement were provided to him on 2 August 2011 by PJ Russell & Associates by email.
Mr Paul Rodionov, of PJ Russell & Associates, said in an affidavit filed on behalf of the Siewerts that, as at 22 July 2011, the accounts for Wingaway and Heron had not been completed. He said that both of those companies had made a profit in the previous year, which was available to be distributed but that the extent of the profit had not yet been calculated. He said that subsequent to July 2011, the accumulated profits and retained earnings for Heron were calculated at $79,428 based on information provided to him. He said that, at no stage, was he asked to prepare a certificate in relation to accounts of either Heron or Wingaway. He was never asked to confirm the accuracy of any of the documents that he prepared.
On 2 August 2011, Mr Rodionov sent to Mr Seller by email a document relating to Heron described as "Financial Report for the year ended 30 June 2011". That document contained blank spaces for signature by an auditor and a date and blank spaces for a director's declaration and a date. Mr Seller agreed in cross-examination that the documents that he saw on 2 August 2011 were not signed. There is no evidence that those blank spaces were ever completed on a version of the document or that a document in that form was ever signed. Mr Seller asserted that PJ Russell & Associates never sent him anything without getting approval from Mr Siewert and that nobody ever said that the documents he received on 2 August 2011 were draft accounts. Mr Seller confirmed that there was no doubt in his mind that the documents he received on 2 August 2011 were not signed. Regardless, he asserted that he understood that they were "finalised" on the basis that nobody told him that they were not "finalised". He asserted that every set of accounts he had received from Mr Rodionov were emailed and were not signed.
While an email was sent to Mr Seller on 2 August 2011 from P J Russell, referring to Wingaway, with the subject line "Financial Report 30 June 2011" and with an attachment labelled "#Company Small - WINGAIR.doc", there was no evidence that accounts in any form relating to Wingaway were attached. However, there was a document in evidence relating to Wingaway entitled "Financial Report for the year ended 30 June 2011". An inference can be drawn that that was the document referred to in the email of 2 August 2011. It is relevantly in the same condition as the documents relating to Heron, in that it has blank spaces for signature by the auditor and director and for dates. There is no evidence that any of those blank spaces were ever completed in any version of the document. It is common ground and unarguable that the balance sheet forming part of that financial report discloses no liability for GST.
The document concerning Heron included an income statement for the year ended 30 June 2011. That statement showed a profit before income tax of $6,336.13 and retained earnings of $86,047.09. It showed, after an interim dividend of $100,000, a loss attributable to the members of $7,616.78. Mr Siewert said that when he first saw accounts of Heron showing a loss, his reaction was that there was "something wrong". He said he asked Mr Rodionov to look at the accounts again and he produced a further set of accounts in September.
On 27 September 2011, Mr Rodionov sent to Mr Seller another document in relation to Heron titled "Financial Report for the year ended 30 June 2011". Mr Rodionov said as follows in the email:
"Further to previous email, here are the Heron accounts to be submitted to TCF. As with the AFR, please print out at your end as your copy and post me the signed director's report and director's declaration."
The income statement forming part of that document showed a profit before income tax of $121,362.82, income tax expense of $27,981.90 and a profit after income tax of $93,380.92. It then showed retained earnings of $86,047.09 less an interim dividend of $100,000, leaving profit attributable to members of the company of $79,428.01.
The reference in the email of 27 September 2011 to the "signed director's report and director's declaration" appears to be to a reference to page 13 of the document, headed "Director's Declaration". The text on that page relevantly reads as follows:
"The directors of the company declare that:
1. The financial statements and notes, as set out on pages 1 to 12:
a. comply with Accounting Standards as described in Note 1 to the financial statements; and
b. give a true and fair view of the company's financial position as at 30 June 2011 and of its performance for the year ended on that date in accordance with the accounting policies described in Note 1 to the financial statements.
…
This declaration is made in accordance with a resolution of the Board of Directors."
That page ends with a blank space for the signature of the "Director Ross Seller" and a blank space for the date.
Mr Rodionov agreed in cross-examination that he sent the document relating to Heron to Mr Seller on 2 August 2011. He said that he had Mr Siewert's authority to do so. He also said that he had Mr Siewert's authority to send the email relating to Wingaway. When asked whether the accounts were "final accounts" he said that they were "draft accounts". When asked why there was no communication to Mr Seller saying that they were draft accounts, he replied that he was asked to provide Mr Seller with the accounts "as we did them and I did". In response to the proposition that he was saying that the accounts were completed and he sent them, he said "they were draft accounts". Mr Rodionov subsequently said that the documents sent in September were "the amended accounts" and "these were draft".
Aquatic contended that, even if the forwarding of documents as outlined above on 2 August 2011 and 27 September 2011 did not produce "Accounts" for the purposes of the Main Sale Agreement, the steps taken by Mr Seller thereafter achieved that result. Thus, on 19 September 2011, Mr Seller sent to Ms Jodie Wootton, of Scottish Pacific Benchmark, a proposed financier, an email in the following terms:
"Please see the attached relating to Wingaway.
…
In the detailed profit and loss there are two non-recurring expenses of significance namely legal fees and cross-hire. These all relate to the previous owner and will not be repeated this year. With those adjustments the maintain of the profits should still be in excess of $1 million.
Please advise when you would like the onsite inspection to be made."
The attachment was the document in relation to Wingaway titled "Financial Report for the year ended 30 June 2011". By email of 19 September 2011, Ms Wootton thanked Mr Seller for the "updated reports". Aquatic contended that since, at that time, Mr Seller was the only director of Wingaway, that conduct constituted adoption of the document in question as the accounts of Wingaway as at 30 June 2011.
However, there was no evidence that Mr Seller ever turned his mind to the question of a resolution of Wingaway adopting the unsigned documents as accounts and there was no evidence that the audit certificate or the director's declaration were ever signed. In those circumstances, there is no basis for concluding that there ever came into existence a document that could satisfy the description of "Accounts of Wingaway as at 30 June 2011". It follows that the primary judge made no error in holding that there was no breach of Warranty 29, whether or not Wingaway had a liability for GST as at 30 June 2011.
Some argument was advanced concerning the question of whether or not the Warranty in relation to "the Accounts" in the Main Sale Agreement could be severed. The primary judge dealt with those contentions and concluded that, in the absence of any documents that satisfied the description "the Accounts" as defined, the relevant provisions could be severed.
However, it is not a question of severance. It was not suggested that no part of the Main Sale Agreement or the Avtex Sale Agreement should be enforced for want of certainty or for any other reason. Aquatic contended that AT Air was entitled to recover damages either under the Australian Consumer Law or for breach of contractual warranties. The fact that the words used in the contracts were inoperative because there was nothing upon which they could operate does not in any way affect the enforceability of the contract. It was not suggested in the further amended statement of claim that, if there were no "Accounts" upon which the warranties could operate, the Main Sale Agreement or the Avtex Sale Agreement could not be enforced. The Siewerts were not seeking to enforce either of the Sale Agreements or any of the Securities. There was, for example, no claim by Aquatic, through AT Air, for recovery of moneys paid under a total failure of consideration. Rather, Aquatic was seeking damages. While it originally sought rescission as a remedy under the Australian Consumer Law, that claim was abandoned in the course of the hearing of the appeal.