Brightstars Holding Co Pty Ltd v Johnston; In the matter of Brightstars Freehold Pty Ltd

Supreme Court of NSW|2012-09-27|Before: Stevenson J

Introduction 1In these proceedings the plaintiffs (Brightstars Holding Co Pty Ltd and Mr Peter Wilson) seek to enforce promises that they contend were made by the first and second defendants (Mr Paul Johnston and Mr Blair Warren). The promises were said to be made in two documents that were entered into to settle earlier proceedings in the Court, proceedings numbered 2010/372333. Those documents are a Deed of Settlement and a Share Sale Deed, both dated 12 May 2011.

Decision 2For the reasons that follow, my opinion is that the plaintiffs are entitled to judgment against Mr Johnston and Mr Warren for the sums of $170,000 and $20,945.30 (plus interest) but that, otherwise, the plaintiffs' case should be dismissed.

The parties 3Mr Wilson and Ms Gloria El Kafrouni were the plaintiffs in the earlier proceedings. In those proceedings, Mr Wilson and Ms El Kafrouni sought relief arising out of their establishment (with Mr Johnston and Mr Warren) of childcare centres in Sydney, which traded as "Brightstars Early Learning Centres". 4Ms El Kafrouni was the third plaintiff in the current proceedings. A sequestration order has been made in respect of Ms El Kafrouni's estate, whereupon she was removed as a plaintiff and joined as a defendant. Notwithstanding these matters, no issue was taken by Mr Johnston or Mr Warren concerning the standing of the plaintiffs to prosecute these proceedings.

Background 5In the Share Sale Deed, Brightstars Holding agreed to purchase from Mr Johnston and Mr Warren (and a company associated with them) shares in a number of companies for $900,000. Those companies carried on various aspects of the Brightstars Early Learning Centres business. 6By the Deed of Settlement, Mr Johnston and Mr Warren agreed to pay $170,000, from the $900,000, to the plaintiffs' solicitors, Willis & Bowring "on account of" the plaintiffs' legal costs in the earlier proceedings. 7In effect, the net purchase price of the shares was $730,000, being the difference between those two figures. It was also the sum of the amount owing by the various Brightstars companies to the National Australia Bank Limited ("NAB") ($575,000) and a nominee company of Mr Johnston and Mr Warren, John Nich Pty Limited ($155,000). 8Clause 2 of the Share Sale Deed provided that settlement of the share purchase should take place within two months; that is by 13 July 2011. Settlement did not take place within that time. The current proceedings were commenced on 12 October 2011 seeking, among other things, specific performance of the Share Sale Deed. 9Ultimately, settlement took place on 1 December 2011, several months after the commencement of the current proceedings. I will return to the circumstances of that settlement below.

The current proceedings 10Now that settlement has taken place, Mr Wilson and Brightstars Holding seek to enforce clause 5 of the Share Sale Deed and clause 8 of the Deed of Settlement against Mr Johnston and Mr Warren. 11Clause 5 provided: - "[Mr Johnston] and [Mr Warren] assert and warrant that the only debts of [Brightstars Freehold Pty Ltd], [Brightstars Early Learning Centres (Engadine) Pty Ltd] and [Brightstars Early Learning Centres Pty Ltd] at the time of this Share Sale Deed are $575,000 owed to NAB and $155,000 owed to John Nich Pty Limited and further warrant [and] agree that they ensure that: (i) none of those companies will incur any other debts which will not have been paid prior to completion of this agreement except for debts incurred in the normal course of business to a maximum in total of $15,000 which will be the responsibility of and paid for by [Mr Warren] and [Mr Johnston]; and (ii) the debts to NAB and John Nich Pty Limited will be paid prior to or on completion, such that each company will be free of debts prior to or on completion, and [Mr Johnston] and [Mr Warren] acknowledge that [Brightstars Holding] has entered into this agreement relying inter alia on the accuracy of these warranties and agreements." 12Clause 8 of the Deed of Settlement provided: - "Irrespective of the Orders in Annexure D [which provided for the dismissal of the Earlier Proceedings], [Mr Johnston], [Mr Warren] and [Brightstars Early Learning Centres Pty Ltd] will on completion of this Deed and the Share Sale Deed, pay $170,000 from the purchase monies received from [Mr Wilson], [Ms El Kafrouni] and/or [Brightstars Holding] pursuant to the Share Sale Deed on account of legal costs of [Mr Wilson] and [Ms El Kafrouni] in the [earlier proceedings] by bank cheque to Willis & Bowring." 13Willis & Bowring were the solicitors for Mr Wilson and Ms El Kafrouni in the earlier proceedings, and are the solicitors for the plaintiffs in these proceedings. Mr Adrian Mattiussi is the partner at Willis & Bowring with conduct of the matter. 14As I have mentioned, settlement occurred on 1 December 2011. Brightstars Holding paid $900,000 to the defendants as required by the Share Sale Deed and the defendants transferred the shares referred to in the Share Sale Deed to Brighstars Holding. 15However, Mr Johnston and Mr Warren did not pay to Willis & Bowring, or to anyone else from the purchase monies received by them, the sum of $170,000 referred to in clause 8 of the Deed of Settlement. 16The matter was listed for hearing before me on 5 and 6 July 2012. On 5 July, for the reasons set out in my judgment delivered that day, I granted the defendants an adjournment of the hearing until 13 August 2012. I directed that the defendants file a defence by 13 July 2012. 17In those Amended Defences, Mr Johnston and Mr Warren alleged, for the first time, that on or about 25 November 2011, the agreements constituted by the Deed of Settlement and Share Sale Deed were varied or replaced by a new agreement. The alleged new agreement is to the effect that the defendants would transfer the relevant shares to Brighstars Holding for $900,000, but that Mr Johnston and Mr Warren would be released from the obligation to pay the $170,000 referred to in clause 8 of the Deed of Settlement. 18That agreement is said to arise from a letter that Mr Mattiussi sent to the defendants' then solicitors on 25 November 2011. 19That letter included a statement that: - "As you are aware, our instructions are to proceed [on a basis set out earlier in the letter acknowledging receipt of $900,000]. The question of this firm's costs as evidenced in the settlement documents is to be a matter between this firm and our client. We have taken this approach in order to facilitate settlement of the Engadine property without further delay." (emphasis added) 20Alternatively, Mr Johnston and Mr Warren alleged that the 25 November 2011 letter constituted a representation to the effect set out in [17] above. 21A considerable portion of the hearing time before me was devoted to exploration of this issue. I will return to it below.

The plaintiffs' claims 22The plaintiffs seek to enforce the promise they contend is contained in clause 8 of the Deed of Settlement, that Mr Johnston and Mr Warren pay $170,000 to Willis & Bowring. 23The plaintiffs also seek to enforce what they contend to be the warranties contained in clause 5 of the Share Sale Deed. The plaintiffs allege that, contrary to clause 5, the companies named therein did incur other debts not paid prior to completion of the agreement on 1 December 2011, and debts beyond those "incurred in the normal course of business to a maximum and total of $15,000". 24In particular, the plaintiffs claim: - (a)$32,596 being the amount paid to the Australian Taxation Office ("ATO") in respect of the income tax and GST obligations of two of the Brightstars companies (Brightstars Freehold Pty Limited and Brightstars Early Learning Centre (Engadine) Pty Limited), and the legal costs of the ATO of proceedings commenced by it in the Federal Court of Australia, together with interest on that sum from 18 April 2012 (the date on which the amount was paid); (b)$20,945.30 being costs paid to Willis & Bowring in respect of the ATO proceedings in the Federal Court; (c)$14,422.10 being accounting fees paid to Mr Peter Coughlan in relation to the ATO proceedings; and (d)$47,359.86 for sundry debts outstanding by Brightstars Freeholding Pty Limited and Brightstars Early Learning Centres (Engadine) Pty Limited. 25Alternatively, the plaintiffs seek orders for specific performance in relation to Mr Johnston and Mr Warren's obligations under clause 5 of the Share Sale Deed.

Credit issues 26The witnesses called on behalf of the plaintiffs, Mr Wilson and Mr Mattiussi, gave clear, responsive and credible evidence. They were not challenged successfully in cross-examination. Indeed their evidence was hardly challenged at all. 27On the other hand, I have considerable reservations about the reliability of the evidence given by Mr Johnston and Mr Warren. 28So far as Mr Johnston is concerned, it is clear that his memory of relevant events is not good. Mr Johnston is a farmer. He said that, at relevant times, he was distracted by the exigencies of harvest. 29At one point in cross-examination, Mr Johnston was asked about a conversation that Mr Mattiussi claimed he had had with Mr Johnston on 11 October 2011 (to which I refer below). Initially, in cross-examination, Mr Johnston said he did not recall the conversation, but did not deny it. However, in an affidavit sworn on 9 August 2012 (five days before the cross-examination) Mr Johnston denied this conversation. Mr Johnston seemed to have forgotten what he had deposed to in an affidavit sworn only days before. 30On another occasion Mr Johnston said that he had never seen an affidavit sworn by Mr Wilson on 3 February 2012 before he was shown it in the witness box. 31Mr Johnston's attention was drawn to the fact that, in his affidavit of 20 March 2012, he had answered some of the paragraphs in that affidavit. Mr Johnston's response was to say that: - "I do have lapses of memory." 32As I will discuss below, Mr Johnston's assertions as to his understanding of the arrangements concerning the $170,000 are contradicted by his later written communications. 33I found the answers given by Mr Warren in cross-examination were confused and often not responsive. 34Further, like Mr Johnston, Mr Warren's assertions as to his understanding of the arrangements concerning the $170,000 are contradicted by his later written communications.

Was the agreement concerning the payment of $170,000 varied? 35In order that the settlement take place, it was necessary that the vendors of the shares procure that the NAB discharge certain securities. 36By about October 2011, the NAB had made clear that it would not discharge those securities unless it received all of the $900,000 payable pursuant to the Share Sale Deed. This meant that Mr Johnston and Mr Warren would not have available, from the proceeds of sale from the shares, $170,000 to pay to Willis & Bowring pursuant to their obligations under clause 8 of the Deed of Settlement. 37On 11 October 2011, Mr Mattiussi had a conversation with the solicitor then acting for Mr Johnston and Mr Warren, Ms Amber Bernauer. Ms Bernauer was (and is) a solicitor employed by Wood Marshall Williams. 38Mr Mattiussi said that his conversation with Ms Bernauer on 11 October 2011 was to the following effect: - "Mattiussi: The NAB is well and truly secured for the remainder of its exposure... I would like to put this to [Mr Johnston]. He's got to get more involved with the bank and put this sort of program to them if this has any chance of settling. I'd even be prepared to speak to my client to delay the payment to him of the $170,000 until after the settlement if there's no other way. The bank would then get the lot... Your people could then use their remaining assets to pay the $170,000 but that should not be a problem having regard to their assets. Bernauer: I have no objection to you speaking to [Mr Johnston]." (emphasis added) 39Mr Mattiussi's evidence about this conversation was not challenged in cross-examination. 40Mr Barrie, who appeared for Mr Warren, read an affidavit sworn by Ms Bernauer of 16 November 2011. That affidavit did not touch on the issue of the $170,000. Mr Warren, through his legal representatives, also caused a subpoena to be served on Ms Bernauer requiring her to attend Court to give evidence. As Mr Harris SC, who appeared for the plaintiffs, did not require Ms Bernauer to attend for cross-examination on her affidavit, Ms Bernauer was not called upon to give evidence pursuant to that subpoena. No attempt was made by the defendants to adduce evidence from Ms Bernauer to deal, in any way, with the issue of the $170,000. In particular, no evidence was adduced from Ms Bernauer to challenge the evidence of Mr Mattiussi about the conversation set out above. 41Nor did the defendants call Ms Bernauer to give any evidence in relation to her correspondence in regard to this issue. I shall refer to that correspondence later in this judgment. 42Mr Mattiussi gave evidence that on 11 October 2011 he had the following conversation with Mr Johnston: - "Mattiussi: There's more than enough assets between [Mr Warren's] units and the $730,000 you're getting from Wilson to secure the NAB's remaining debt ... You've got to put this type of scenario to them. You've got to get more involved. Johnston: I'll do my best. Mattiussi: If it would help in discussions with the NAB, I would be prepared to speak to [Mr Wilson] about delaying the payment of the $170,000 until after the settlement. Johnston: That could really be helpful Adrian." (emphasis added) 43Again, Mr Mattiussi's evidence about this conversation was not challenged in cross-examination. 44As I have mentioned, although he had earlier denied this conversation, in cross-examination Mr Johnston said he did not recall this conversation. He did not deny it. I find that the conversation took place. 45The next day, 12 October 2011, Mr Warren rang Mr Wilson, with Mr Trevor Quilkey on speakerphone. Mr Quilkey was acting as some kind of adviser to Mr Johnston and Mr Warren. 46Mr Wilson gave this account of the conversation, which was not challenged in cross-examination: - "Mr Warren: We have had confirmation from the NAB that if we don't settle on Engadine for the full $900K they will be commencing winding up procedures [sic] against the properties. Mr Quikley: That's...right Pete have some brains or everyone will lose. The NAB...will just proceed to wind up. [Mr Warren] and [Mr Johnston] have enough assets to ensure Mattiussi gets his $170K after settlement, [Mr Warren] is happy to give him an unregistered mortgage secured by a caveat against his units. I have prepared a statement showing the situation if Mattiussi works with us and waits for the $170K till after settlement. Mr Warren: As [Mr Quilkey] has said I'm happy to secure the $170K against my units. [Mr Johnston] has been able to borrow $50K cash from a family friend that Mattiussi can have at settlement." (emphasis added) 47Shortly after that, Mr Wilson received from Mr Warren a fax which set out details of "NAB Exposure" and included the statement: - "Engadine settlement is due on 13/11. Solicitor has agreed to wait for his fees". (emphasis added) 48On 25 November 2011, Mr Mattiussi wrote the letter to which I have referred at [18-19] above. 49Mr Johnston gave evidence that on 29 November 2011 he had a conversation with Mr Mattiussi as follows: - "Johnston: Adrian, [Ms Bernauer] emailed me your letter of last Friday [25 November 2011]. I am so pleased that we can finally bring this to an end. I see that you're taking up the fees with your client. Mattiussi: Yes, [Mr Wilson] will have to come up with my legals. As I stated in the letter, the fees are between me and my clients." 50Mr Mattiussi denied that any such conversation took place. 51On 8 December 2011 Mr Mattiussi sent Mr Wilson and Ms El Kafrouni a memorandum of fees which set out, in great detail, the work that Mr Mattiussi had done, including, on 29 November 2011 charges for seven separate telephone calls and attendances. There was no reference in the account to any telephone call with Mr Johnston. There is no reason why Mr Mattiussi would not have charged his clients for a conversation with Mr Johnston had it occurred. For those reasons, and because of the view I have formed as to the reliability of Mr Johnston's recollection, I do not accept that the conversation to which Mr Johnston deposed took place. 52Mr Johnston gave evidence: - "I understood the above comments to mean that, if the sale of shares was settled, then I would not have any obligation to ever pay any money to Willis & Bowring... As at 1 December 2011, being the date of settlement of the share transfer and related matters, I considered that transaction to be at an end. In this regard, I consider the transaction to be the sale of the shares in the companies and the payment of $900,000 by Wilson and his interests, with all of those funds to be directed to the NAB." 53Mr Warren gave evidence to similar effect: - "I received a copy of [Mr Mattiussi's letter of 25 November 2011] from my then solicitors shortly after it was sent and after I read it I gave instructions to my solicitors to proceed with the sale of the shares. I would not have done so if the November letter had not said that the plaintiffs would not require payment of $170,000 of the purchase price to Willis & Bowring and that their costs were a matter between the plaintiffs and Willis & Bowring." 54In cross-examination, Mr Warren said that, at around this time, Ms Bernauer had said to him something to the effect that it had been agreed that all parties would pay their own legal costs. Mr Warren said he asked Ms Bernauer whether that meant that it was "over" and that she said that it was. Mr Warren said he recalled that Ms Bernauer was smiling when she said this. 55The probability of the correctness of the evidence referred to in the three preceding paragraphs must be assessed in the light of subsequent events. 56Settlement took place on 1 December 2011. The shares referred to in the Share Sale Deed were transferred and the plaintiffs paid the defendants $900,000. Mr Johnston and Mr Warren did not pay $170,000 to Willis & Bowring.

What was the variation to the agreement concerning $170,000? 57As emerges from the preceding paragraphs, the position of Mr Johnston and Mr Warren is that Brightstars Holding and Mr Wilson either agreed that it was no longer necessary for Mr Johnston and Mr Warren to pay $170,000 to Willis & Bowring on settlement (as called for by clause 8 of the Deed of Settlement) or, alternatively, represented that this was the position and thereby, in effect, agreed to reduce the total purchase price of the shares from $900,000 to $730,000. 58It was submitted on behalf of Mr Warren and Mr Johnston that this agreement, or representation, is to be found within the four corners of Mr Mattiussi's letter of 25 November 2011. 59On the other hand, Brightstars Holding and Mr Wilson contend that all that was agreed was that, because of the position taken by the NAB, the $170,000 could be paid after settlement, rather than on settlement (as called for by clause 8 of the Deed of Settlement). 60Viewed in isolation, the terms of Mr Mattiussi's 25 November 2011 letter give some support for Mr Johnston and Mr Warren's contentions. However, it is obvious from the material to which I refer below, that this was not Mr Johnston and Mr Warren's view until about the time they put on their Amended Defences in July this year. 61Post-contractual conduct is admissible to determine whether a contract has been formed (per Heydon J in Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [25]) and to determine the terms of that contract and whether the contract is wholly in writing: Lym International Pty Limited v Marcolongo [2011] NSWCA 303 per Campbell JA at [138-144]. 62Examination of the events following 1 December 2011 makes quite clear, in my opinion, that what was agreed between the parties was that the $170,000 need not be paid on settlement, but was to be paid later; and that it was not the parties' agreement that the $170,000 was not to be paid at all.

Events after 1 December 2011 63On 23 January 2012 Ms Bernauer wrote to Mr Mattiussi: - "We note that in compliance with the Deed of Settlement and Share Sale Deed we are currently resolving the GST issues with the ATO and anticipate that such matters will be finalised within 3 weeks. In the meantime please kindly provide us with your tax invoice for costs in relation to the sum of $170,000 referred to in the Deed of Settlement." 64That letter makes clear that Ms Bernauer's state of mind was that the $170,000 remained to be paid. Ms Bernauer was seeking a tax invoice for that amount. 65That state of mind cannot be reconciled with Mr Warren's evidence that Ms Bernauer had told him that, at around settlement, all parties would pay their own legal costs and that it was "over". 66As I have mentioned, an affidavit of Ms Bernauer sworn 16 November 2011 was read in Mr Warren's case. The defendants' counsel did not ask Mr Bernauer any questions about this letter, or indeed any other correspondence after the settlement. 67On 31 January 2012 Mr Mattiussi wrote to Ms Bernauer: - "As to the $170,000 owed by your clients stipulated in the Deed of Settlement we respectfully submit that this is not a matter which requires a 'tax invoice'. It is a sum agreed to be paid by your clients as part of their settlement with our client. It is not subject to taxation of negotiation, and we look to your clients for payment without further notice." 68That letter made clear that Mr Mattiussi regarded the $170,000 as still payable and constituted a demand by Mr Mattiussi that the sum be paid forthwith. 69On 21 February 2012 Ms Bernauer sent an email to Mr Johnston and Mr Warren which included: - "The sum of $170,000 is still outstanding as are the further items referred to in the amended Statement of Claim and the taxation matters are effectively not resolved until such time as the ATO says they are. Please advise how you both propose on coming up with funds to pay the $170,000." 70On 22 February 2012 Mr Quilkey sent a reply from Mr Warren's email address. He asked whether Mr Mattiussi was: - "...aware that [Mr Warren] is agreeable to give him documentation & Caveat to secure his $170K. Perhaps you could ring either [Mr Warren] or myself". 71In cross-examination Mr Warren gave this evidence: - "Q: At that time you were prepared to pay or give security for the $170,000, weren't you? A: If I could raise the money, I'd try to, yeah." 72In cross-examination Mr Warren said that he "can't use an email". 73However, he agreed that the relevant email address was his and, indeed, that he had "about" three other email addresses. 74Based on that evidence, and the form of the email of 22 February 2012, I am satisfied that Mr Warren was present when Mr Quilkey sent the email and was aware of its contents. The email shows not only that Mr Warren believed that the $170,000 was still due, but that he was prepared to offer Mr Mattiussi "documentation" and a caveat to secure payment of that amount. 75On 22 February 2012 Mr Johnston sent an email to Mr Bernauer referring to Mr Mattiussi's partner, Mr Ron Tosolini and stating: - "We are hoping to have a confidential meeting with him to assure him his firm will be paid." 76On 6 March 2012 Mr Quilkey sent an email to Ms Bernauer as follows: - "Good morning Amber. [Mr Warren] got a call from Wilson about 2pm yesterday, which he put on the loudspeaker so Wilson didn't know I was listening... What was very interesting was that Mattiussi was with him & Wilson put him on the 'phone. He remarked to [Mr Warren] that he was sick of the matter & just wanted it settled & also wanted his $170K. [Mr Warren] handled it very well...[Mr Warren] told [Mr Mattiussi] that: -

Morayfield is going to tender later this week, which it is.
His unit at [Woollahra] is also up for sale as soon as the tenant vacates, & that Mattiussi would be paid from the proceeds". 77In the course of cross-examination Mr Warren gave the following evidence about that email: - "Q: You understood at that time you owed [Mr Mattiussi] the $170,000, didn't you? A: Yes, about $170K yes." 78On 7 March 2012 Ms Bernauer wrote to Mr Mattiussi: - "We are instructed that provided all other matters can be resolved (but for the taxation matters which we understand will be pending for some time) our client is prepared to offer security for the sum of $170,000 by way of a second mortgage in respect of Mr Warren's property at [XXXXXX] Woollahra... We are instructed that our clients intended upon sourcing the sum of $170,000 through the sale of Mr Warren's property at [XXXXX] Woollahra." 79An exchange of emails between Ms Bernauer, Mr Johnston and Mr Warren makes clear that both Mr Johnston and Mr Warren approved the form of that letter. 80On 8 March 2012 Mr Johnston sent an email to Ms Bernauer saying that he had spoken to Mr Warren, that Mr Warren wished to meet Ms Bernauer the next day and that: - "A settlement deed needs to be drafted in that deed it must say that [Mr Warren] will pay Willis Bowring their $175K...[Mr Warren] must provide proof he is able to pay these amounts i.e. market appraisal on unit against debt owing". 81On 12 March 2012 Mr Johnston sent an email to Ms Bernauer: - "We are doing everything in our power to settle this matter, we have been in touch with Ron Tosolini, the principal on the other side. He has said it's back in Mattiussi hands, we have to wait for his response...it's not like we don't want to pay the tax and Mattiussi legal costs we can and we will, we just need them to stay proceedings until we can sell Morayfield and [Mr Warren's] unit which are well on their way to being sold." 82On 13 March 2012 an email sent to Ms Bernauer from Mr Warren's email address from "Trev/Blair" (Mr Quilkey and Mr Warren) included: - "We of course realise that there will not be any excess from the sale of Morayfield to pay the $170K but we have offered [Mr Mattiussi] a second mortgage on [Mr Warren's] unit at [XXXXXX] Woollahra." 83There is in evidence what appears to be a fax from Mr Warren to Ms Bernauer which commences: - "I am in receipt of your email & latest claim of $425K by Adrian Mattiussi which I completely refute. The base figure of $170K of course was the figure in the original Deed of Settlement, however the rest of the claim in my opinion is incorrect as follows". 84There followed a detailed refutation of other claims said to have been made by Mr Mattiussi. 85Mr Warren said, in cross-examination, that he had not seen that document until it was shown to him in cross-examination and that he did not send it to Ms Bernauer. 86However Ms Bernauer, under cover of letter of 12 June 2012, sent a copy of that document to Mr Mattiussi stating: - "We enclose herewith copy of correspondence of Mr Warren for your client's information and consideration." 87I do not accept Mr Warren's denial that he did not send this document to Ms Bernauer. There is no reason why Ms Bernauer would describe the document as "correspondence of Mr Warren" if that was not an accurate description. As I have mentioned, Mr Warren's counsel read an affidavit sworn by Ms Bernauer. She was available to be cross-examined on behalf of Mr Warren. No questions were asked of her.

What was the agreement concerning the $170,000? 88In my opinion, the above evidence points overwhelmingly to the conclusion that, contrary to the case advanced before me in these proceedings, Mr Johnston and Mr Warren clearly understood that the arrangements leading up to the 1 December 2011 settlement so far as they concerned the $170,000, amounted to no more than an agreement by the plaintiffs that the $170,000 could be paid after settlement and not, as required by clause 8 of the Deed of Settlement, on settlement itself. Notwithstanding the terms of Mr Mattiussi's letter, and as Mr Johnston and Mr Warren understood perfectly well, the plaintiffs did not agree to forego payment of the $170,000. 89The communications from both Mr Warren and Mr Johnston are impossible to reconcile with either of them genuinely believing that Brightstars Holding and Mr Warren had agreed to waive the requirement that the $170,000 be paid and, in effect, agreed to pay an extra $170,000 for the shares. 90As I have mentioned, the suggestion that the defendants had been released from any obligation to pay the $170,000 was first made in the Amended Defences filed by Mr Johnston and Mr Warren after the adjournment of the proceedings on 5 July 2012. There had been no such suggestion made in: - (a)the Defences filed by Mr Johnston and Mr Warren in 2011; (b)the affidavits sworn by Mr Johnston and Mr Warren before the adjournment of 5 July 2012; or (c)during the course of the application to vacate the hearing dates of 5 and 6 July 2012. On that occasion the plaintiffs requested that I impose, as a condition of any adjournment, an order that Mr Johnston pay the $170,000. Counsel appearing for the defendants on that occasion (who appeared for Mr Warren at the trial), after obtaining instructions to respond to that suggestion, and subsequently conferring with Mr Johnston, opposed a condition that $170,000 be paid. But the condition was only on the basis that it would be impracticable for the defendants to raise that sum in a short time. There was no suggestion that the $170,000 was not owed. 91The strong impression I have is that after the adjournment consideration was given to the form of Mr Mattiussi's letter of 25 November 2011 (without regard to the surrounding circumstances to which I have referred) and the idea conceived that an argument of the type advanced was available. 92Whether or not this is so, I reject the defendants' submission that there was an agreement, shortly prior to the settlement of 1 December 2011, that the $170,000 not be paid. 93No submissions were addressed to me as to the precise consequence of the plaintiffs' agreement that the $170,000 not be paid on settlement. In my opinion, the proper conclusion is that the sum became repayable on reasonable notice, and that reasonable notice was given by Mr Mattiussi's letter of 31 January 2012, referred to above. 94I find that the sum is still owing and propose to enter judgment accordingly.

Amounts due to the ATO and in respect of the ATO proceedings 95This claim arises under clause 5 of the Share Sale Deed (set out at [11] above). 96In that clause Mr Johnston and Mr Warren "assert and warrant" that the only debts owing to the relevant Brightstars companies were those owing the NAB ($575,000) and John Nich ($155,000). Mr Johnston and Mr Warren "further warranted" that none of the Brightstars companies would incur any other debts (except the debts incurred in the normal course of business, and then to a maximum of $15,000) and would, in any event, be responsible for and would pay those "other debts". 97A number of questions arise. First, clause 5 does not say, in terms, to whom Mr Johnston and Mr Warren made the assertion and gave the warranty. In my opinion, on the proper construction of clause 5, the warranty is given to the purchaser, Brightstars Holding. 98Second, clause 5 is a warranty by Mr Johnston and Mr Warren that no "other debts" exist and a promise that, if they do, Mr Johnston and Mr Warren will see them paid. 99So far as concerns the $32,596 paid to the ATO for outstanding tax and the ATO's costs of the Federal Court proceedings (see [24(a)] above) there is no evidence before me as to who paid that amount. Mr Wilson deposed to the payment, but did not say who made it. 100Mr Harris submitted that I should infer that one of the plaintiffs made the payment. But I see no basis upon which I could draw that inference. The tax was payable by Brightstars Freehold Pty Limited and Brightstars Early Learning Centre (Engadine) Pty Limited, and not by either of the plaintiffs. No submission was made to me as to why I would not infer that the taxpayer companies, rather than one of the plaintiffs, made the payment. 101Mr Harris submitted, in the alternative, that I should make an order that Mr Johnston and Mr Warren specifically perform their obligations under clause 5 of the Share Sale Deed by paying the $32,596 to the ATO. In that event, Mr Harris submitted "the credit will then filter through to the companies". 102The ATO has been paid the $32,596. There is no evidence before me as to what the ATO would do if presented with a second payment. It might, as Mr Harris surmised, accept the second payment and refund the first. But it might simply return the second payment, and invite the parties to sort matters out for themselves. 103After the conclusion of oral submissions, I sought further submissions from counsel on this topic. The submissions I received did not engage with the issue. 104I do not think I should make an order for specific performance in these circumstances. The amount has been paid. It is not appropriate that I order it be paid again. The appropriate remedy was damages. That has not been made out. 105In relation to the $20,945.30 paid to Willis & Bowring in respect of the ATO's costs of the Federal Court proceedings (see [24(b)] above), Willis & Bowring's tax invoice was addressed to Mr Wilson. He was liable to pay the amount. 106In those circumstances, Mr Wilson is entitled to damages against the defendants for that sum. 107In relation to the $14,422.10 paid to Mr Coughlan in relation to the ATO proceedings (see [24(c)]) Mr Coughlan's accounts were addressed to Brightstars Early Learning Centre (Engadine) Pty Limited. There is no evidence as to who paid this sum (or indeed, whether it has been paid). On the face of it, neither of the plaintiffs is liable to pay it. 108I cannot see upon what basis any of the plaintiffs can obtain relief in respect of this sum. As Mr Harris said in submissions, this must be a matter "for another time".

Sundry debts 109On the proper construction of clause 5 of the Share Sale Deed, Mr Johnston and Mr Warren warranted that the relevant Brightstars companies would not incur "other debts" prior to completion otherwise than in the normal course of business, and then to a maximum of $15,000. They also agreed that they would pay those "other debts", including those within that $15,000 limit. 110The only evidence of the sundry debts comprises invoices from various purported creditors of the relevant Brightstars companies. 111I am prepared to infer, from the face of the invoices, that the goods and services referred to in them were supplied to the relevant Brighstars company. I am also prepared to infer that the amounts in the various invoices were, as at their dates, payable. 112However, there is no evidence as to whether any of the invoices have been paid. In relation to the nine invoices referred to in Mr Wilson's affidavit of 20 June 2012, Mr Wilson deposed that those amounts were "payable prior to the settlement date". Mr Wilson did not say, and was not asked, whether those, or any of the other amounts remain payable. 113In the absence of evidence as to whether the invoices have been paid (let alone evidence of by whom they have been paid) I am not able to make any order for damages in respect of these sundry debts. 114Mr Harris submitted that I should make an order that Mr Johnston and Mr Warren specifically perform their promise to pay those amounts. Mr Harris drew my attention to Beswick v Beswick (1968) AC 58 at 101-102; Coulls v Bagot's Executor and Trustee Co Limited (1967) 119 CLR 460 at 503 and Trident General Insurance Co Ltd v McNiece [1988] HCA 44; (1988) 165 CLR 107 at 119-120. 115But, as I have said, there is no evidence as to whether the invoices have been paid. It is likely some invoices have been paid. For example it seems unlikely that a "final reminder" from the Australian Securities and Investments Commission requesting immediate payment of a fee by Brightstars Freehold Pty Limited and threatening deregistration of that company has been ignored. Similarly, it seems improbable that an arrears notice from Sutherland Shire Council to the same company has been ignored. 116I do not think it appropriate to make an order for specific performance in the absence of evidence that the amounts are presently unpaid. After the conclusion of oral submissions I sought submissions on this topic. Again, the submissions I received did not take the matter further. 117I am not prepared to make any order in respect of the sundry debts.

The condition precedent argument 118I turn to a number of further arguments advanced on behalf of the defendants. 119Clause 10 of the Share Sale Deed provided: - "This Share Sale Deed is subject to the purchaser within 21 days of the date hereof obtaining finance in the sum of $900,000 for the purchase of the shares." 120On behalf of Mr Warren it was submitted that this clause constituted a condition precedent, that the purchaser, Brightstars Holding, had not obtained finance within that 21 day period (that is by 3 June 2011) and that, accordingly, "the deeds were discharged and the defendants were not and could not be compelled to complete them". 121The short answer to this submission is that clause 10 was for the benefit of Brightstars Holding, as purchaser, and could be waived by it: Perri v Coolangatta Investments Pty Limited [1982] HCA 29; (1982) 149 CLR 537 at 543 (per Gibbs CJ), 565 (per Brennan J), 560 (per Wilson J). 122I reject the submission that the Share Sale Deed was discharged as at 3 June 2011, or at all. 123In any event, the reason settlement did not take place within the two month period specified in clause 2 of the Share Sale Deed was not related to any difficulty the plaintiffs had with funding; the reason settlement was delayed was because of the NAB's insistence that its whole debt be repaid from the proceeds of sale.

The implied variation of clause 5 argument 124It was also submitted on behalf of Mr Warren that as the settlement of the Share Sale Deed did not take place by 12 July 2011 (two months after the date of the deed) but, rather, took place on 1 December 2011: - "The Deeds must have been varied...to increase the debts permitted to be incurred by [the relevant Brightstars companies] in the course of ordinary business of the Engadine Child Centre, in accordance with the further time required to complete the Deeds". 125It was not clear to me precisely how this submission was put. At one point it was suggested that the variation was an implied term of the agreement. There was also suggestion that there was an implied variation of the agreement. Either way, I see no basis for the submission and I reject it.

The John Nich argument 126It was also suggested that, as an aspect of the agreement reached prior to the settlement of 1 December 2011, John Nich had agreed to forego its entitlement to be paid the $155,000 figure referred to in clause 5 of the Share Sale Deed and that this fact somehow explained why the plaintiffs would agree to release Mr Johnston and Mr Warren from their obligation to pay the $170,000 referred to in clause 8 of the Deed of Settlement. 127However, there is no evidence as to whether John Nich was or was not paid the $155,000. 128John Nich was a party to these proceedings. It has filed a Defence in the proceedings. It has not at any time asserted it did not receive the funds. 129In any event, the proposition that the alleged fact that John Nich agreed to forego its entitlement to the $155,000 is somehow supportive of the defendants' contention that the plaintiffs surrender their entitlement to clause 8 of the Deed of Settlement is impossible to reconcile with the evidence I have outlined above, with the defendants' conduct and communications after settlement.

Conclusion 130I direct the parties to bring in short minutes to give effect to these reasons and will hear submissions as to costs.

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: 18 October 2012

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Judgment (18 paragraphs)

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Cases Cited (8)