Ford Kinter & Associates Pty Ltd v Reliance Franchise Partners Pty Ltd [2018] VCC 9

(a) How is clause 2.2 of the deed to be construed? Answer: the clause should be construed so that it sets the amount of the second and third instalments of the purchase price, unless and until a party invokes the process of determination in accordance with clauses 2.2(b) and (c).

(b) Did Reliance repudiate the deed, resulting in its termination? Answer: yes.

(c) What (if anything) is payable by Reliance to Ford Kinter on termination? Answer: $932,397.95.

4 Ford Kinter was a general insurance brokerage, operating since 1987. Its directors are Douglas Ford and his wife Gwendoline Ford. Ford Kinter provided insurance services to both individual and corporate clients from various offices. Its head office was located in Tullamarine and it had regional offices in Seymour, Mansfield, Mooroopna, Horsham, Stawell and Deniliquin, as well as an office in Darwin. Ford Kinter did business with around 116 different underwriters. Its major underwriters included CGU, QBE, Vero and Allianz.

5 Ford Kinter had three sources of income. Its primary source of income was commission and fees on the sale of insurance products. Ford Kinter earned commission and fees by arranging insurance services for a client, including by finding suitable cover from an underwriter, submitting this to the client for their consideration and, if the client agreed to the cover proposed, issuing an account to the client. The account covered the underwriter premium and Ford Kinter's fees. The underwriter premium included a commission payable by the underwriter to Ford Kinter at a rate agreed with the underwriter. The commission rate ranged from about 5% to 20%.

6 In most cases, Ford Kinter collected the money from the client, forwarded the proportion representing the underwriter premium to the underwriter less the agreed commission, and retained the balance. Ford Kinter recorded details of the receipt in a software system designed for insurance brokers with the acronym BAIS. This process would be repeated on each annual renewal of the insurance by the client.

7 Ford Kinter also derived income from a finance product known as "premium funding" (described during the evidence as "premium funding income"). Clients who were unable or unwilling to pay an insurance premium upfront were offered this product from a "premium funder". The client would make monthly payments to the premium funder, but the funder would cover the full upfront cost of the insurance premium. In these arrangements, in addition to the commission and fees on the insurance product, Ford Kinter also received a commission from the premium funder of between 1% and 2%.

8 Finally, where a client had the option of paying an underwriter directly in instalments by direct debit and chose that option, the full amount payable by the client was paid directly to the underwriter. As the underwriter received each instalment from the client, it would remit the proportion representing Ford Kinter's commission directly to Ford Kinter. This source of income was generally described in the evidence as the "direct debit income".

9 In about August 2013, Mr Ford was approached by David Wyner, a director of Reliance, about Mr Ford's interest in selling Ford Kinter's general insurance business to Reliance. After a period of negotiation, on 12 September 2013 Ford Kinter and Reliance signed a heads of agreement. The recitals to the heads of agreement were as follows:

"The Purchaser wishes to purchase the insurance broking client portfolio currently owned by the Vendor.

The purchase price offered by the Purchaser is 2x Broking revenue including premium funding revenue (but excluding interest income) with 67.5% of the full purchase price being paid upon settlement date, with a further 20% being paid at the one-year anniversary of settlement, with the final instalment of 12.5% being paid on the second year anniversary of the settlement date. The final instalment will be adjusted for any rise or fall in income as it relates to the portfolio purchased.

This document sets out the key terms and conditions, which will apply to the transaction. It also sets out the intentions of the Purchaser post settlement."

10 The recitals to the heads of agreement are followed by the heading "Operative provisions". These include the following [emphasis added]:

"1.1 Ownership

The Purchaser will purchase 100% of the insurance broking portfolio of the Vendor. The Vendor, prior to sale, will remove such clients from the portfolio that it intends to move ownership internally from Ford Kinter to PetPlan. This will mainly affect the insurance broking client portfolio in the Vendor's Seymour and/or Tullamarine offices. All branches and clients currently in the Vendor's network (with the exception of those being transferred to PetPlan) will be included in the sale.

The Purchaser will then on-sell 50% ownership stakes in each insurance broking client portfolio to franchisees within the Reliance Franchise Partners network.

1.2 Management

The Franchisee will have sole management responsibility for the business; however, will work closely with the Vendor to ensure that every effort is made to secure the renewal of the insurance policies held by the clients that are included in the purchased insurance broking client portfolio.

The Vendor(s) will make themselves available to the franchisee to provide guidance and advice regarding the retention of clients. The Vendor(s) will be on-site in the Tullamarine office complex, and will make themselves available to the franchisee to meet from time to time to be updated on progress and to discuss general business.

...

1.5 Systems

The Vendor will grant the Purchaser and the Franchisee access to its current iBais system for a period of two months on a cost basis proceeding settlement. The Vendor will also allow the Franchisee to use its current inter-office phone system for a period of two months proceeding [sic] settlement. The Purchaser and/or the franchisee will arrange to transfer purchased client data and history to its own Winbeat system, and will also source and install a new phone system as required.

...

1.8 Due Diligence

The Vendors will provide the Purchaser with accurate records as to the quantum of revenue to be purchased, and accurate client lists. The Vendor will also provide 'normalised' financial statements for the current year, and for two years prior. The Vendor also provide other information deemed necessary by the Purchaser to verify the details of the purchase.

...

2.1 Regular meetings

The Purchaser and the Vendor will hold regular meetings (not more than three months apart) to discuss the progress of the business and the retention of clients. The franchisee, at the Purchasers [sic] request, may be present at the meetings where deemed appropriate."

11 Mr Ford's evidence was that, "on signing the heads of agreement, Reliance were given open access to our BAIS system, our bank accounts and so they were able to do their own due diligence." He said that he thought three or four people attended the Ford Kinter Tullamarine office for a total of three or four days to do the verification, and Reliance were also given remote access to Ford Kinter's BAIS system, to verify that commissions and fees were as stated. Mr Ford added that the records made available to Reliance included "...the clients' records plus the financial transactions, they also had available to them our statutory audited accounts, so they had basically - all the information that I had was open and available to them". This included access to Ford Kinter's MYOB general accounts.

12 As part of the due diligence process, Mr Ford sent to Mr Wyner by email dated 24 September 2013 a number of schedules of financial information relating to Ford Kinter's insurance business. These showed (among other things) that the total income of the business (I presume including Petplan) was $1.549 million for the financial year ending 30 June 2011, $1.548 million for the financial year ending 30 June 2012 and $1.569 million for the financial year ending 30 June 2013.

13 The deed is dated 11 October 2013. It was signed by Mr and Mrs Ford both as directors of Ford Kinter and in their personal capacity (each as "Covenantor"). It was signed by Mr Wyner in his capacity as a director of Reliance. The deed included provisions as follows:

1.1 Definitions

In this document unless the context otherwise requires:

"Assets" means the Vendors book of Clients, the Client List and all Associated Data, but excludes the Transferred Clients.

...

"Purchase Price" means the consideration for the sale of the Assets as determined under clause 2.2.

...

"Renewal Revenue" means, for any given period of time, the total of all fees and commissions (including premium funding commissions but excluding government taxes and statutory charges such as GST, stamp duty and fire service levies) earned during that period in relation to insurance policies or premium funding taken out or renewed by the Clients, but excludes any interest income.

2.2 Purchase Price

(a) The Purchase Price for the Assets is 2 times Renewal Revenue for the 12 months ending 30 June 2013 ("Initial Purchase Price Calculation"), in relation to which:

(i) 67.5% of the Initial Purchase Price Calculation is payable at Completion ("First Instalment");

(ii) subject to clause 2.3(b), 20% of the Initial Purchase Price Calculation is payable on 1 November 2014 ("Second Instalment"); and

(iii) subject to clause 2.3(c), 12.5% of the Initial Purchase Price Calculation is payable on 1 November 2015 ("Third Instalment").

(b) As soon as practicable after 30 June 2014, the parties will determine the value of 2 times Renewal Revenue for the 12 months ending 30 June 2014, using the Vendor's commission rates which were in force at the Effective Date. This amount will be deemed to be the Purchase Price. If the adjusted Purchase Price is more or less than the Initial Purchase Price Calculation, the Second Instalment will be calculated as 87.5% of the adjusted Purchase Price minus the First Instalment (with a minimum of zero).

(c) As soon as practicable after 30 June 2015, the parties will determine the value of 2 times Renewal Revenue for the 12 months ending 30 June 2015, using the Vendor's commission rates which were in force at the Effective Date. This amount will be deemed to be the Purchase Price. If this adjusted Purchase Price is more or less than the Initial Purchase Price Calculation, the Third Instalment will be calculated as the adjusted Purchase Price minus the First Instalment and the Second Instalment (with a minimum of zero).

(d) Despite anything to the contrary in clauses 2.2(a), (b) or (c), the Purchaser's obligation to pay the Second Instalment and Third Instalment is always subject to the Vendor and each of the Covenantors not being in breach of any of their obligations under this document, including but not limited to clause 11.

4.3 Tullamarine Office

(a) The Purchaser intends to appoint a franchisee, to be determined by the Purchaser and notified to the Vendor ("Franchisee"), to operate the Tullamarine office of the Business.

(b) The Vendor and the Covenantors will make themselves available to provide advice and guidance to the Franchisee regarding the retention of Clients of the Tullamarine office and to discuss the operation of the Franchisee's business at this office.

(c) If the Franchisee wishes to employ the two Employees currently based at the Tullamarine office, the Vendor will use best endeavours to ensure that these Employees accept the franchisee's offer of employment.

(d) For a period of 12 months after the Completion Date, the Vendor will provide to the Franchisee with sufficient rent free office space at the Tullamarine office for the Franchisee's principal and staff.

...

4.4 Other post-Completion obligations

...

(b) The Vendor will give the Purchaser and its various franchisees access to the Vendor's iBais system on an actual-cost-recovery basis for two months after Completion.

(c) The Vendor agrees to the operation of the Business by the Purchaser and its various franchisees on a co-branded (ie. the Vendor's and the Purchaser's respective branding) basis for up to 2 years after Completion."

5.1 Notification to Clients

Immediately following the Effective Date, the Vendor and the Purchaser must issue a joint announcement, at the Purchaser's cost, to all Clients notifying them of the Purchaser's purchase of the Business.

5.2 Vendor to support renewal

Without limiting clause 5.1, after the Effective Date, the Vendor must not arrange or effect an insurance policy for a Client and will, if it has any communication with a Client, encourage the Client to renew its insurance through the Purchaser.

14 The deed attached a page headed "Ford Kinter Summary Book Value as at 11 October 2013", which included the following table:

15 This page does not appear to be referred to in the body of the deed as a schedule or otherwise, but it is not in dispute that it represented the "Initial Purchase Price Calculation" within the meaning of the deed and, more particularly, that the amount of $1,936,269.64 identified in the table, was the 67.5% of the "Initial Purchase Price Calculation" within the meaning of clause 2.2(a) of the deed. It is also not in dispute that this sum was both payable and duly paid by Reliance to Ford Kinter pursuant to the deed.

16 Mr Ford gave evidence that after the deed was signed, a number of Reliance staff members moved into a section of the Ford Kinter office at Tullamarine to commence to run the insurance business. Mr Ford observed that the clients of the business were treated by the Ford Kinter staff retained by Reliance and Reliance staff in the same way they had been treated by Ford Kinter. This included the clients of other Ford Kinter offices, calls from whom generally came through the Tullamarine office. The offices themselves continued to be staffed by ex-Ford Kinter staff and managers.

17 According to Mr Ford, Mr Wyner would visit the Tullamarine office on a regular basis; in the early days probably once a week and then eventually once a month. Mr Ford had contact with Mr Wyner during these visits. Mr Ford's unchallenged evidence about these visits was as follows:

"I was very keen to know how everything was flowing and making sure that the business was progressing as per our agreement and that he wasn't having any difficulty or any of his staff weren't having any difficulty in renewing the business. And, in fact, Mr Wyner did tell me on a couple of occasions that the retention rate was in excess of over 90%, which was normal for the business. We had always retained over - in excess of 90% of our business clients."

18 Mr Ford said that this conversation about the retention rate was about three or four months after Reliance took over the business and that he had similar conversations with Mr Wyner on two or three occasions. When asked why Mr Ford was interested in having those conversations, Mr Ford said:

"Well, purely because I wanted the second and third payment. They owed me I mean, I had, in our terms, we had skin in the game so we wanted to be paid, so I was very keen to make sure that he was renewing the business and everything was going in accordance with as per our agreement, with the assumption that we would get paid."

19 Later in his evidence, Mr Ford confirmed that Mr Wyner did not provide any hard figures at this time about client retention, but he had no reason to doubt Mr Wyner's assurances about the level of retention: "Mr Wyner always insisted that the business was going well and there wasn't an issue". Mr Ford also noted that he was reassured by the fact that he did not receive any complaints from clients during this period. He said:

"Remember, I owned this business for 27 years, a lot of my clients over those periods have become, through being clients, have become friends and I'm sure that, had there been some problems, it would have been brought to my attention, but I never had anything to indicate that there was a problem with the business or that there was a problem with retention."

20 On 13 August 2014, Natasha Golden sent an email to Mr Wyner, with a copy to Mr Ford. Ms Golden had been Ford Kinter's general manager and was, at the time of the email, the general manager of Petplan. The email stated (among other things):

"I thought it would be a good idea for us to lock in a date to catch up at some stage... to get an update on the FKA/Reliance offices etc. let me know what dates suit you and I will coordinate on our end.

Also, we will obviously need to arrange a [sic] audit of the portfolio prior to the 1st November 2014 anniversary. I would suggest if we set aside two days (one day maybe all that is required) for me to come into your Melbourne office to review this with your team the week of the 27th October 2014 if you can organise this on your end and let me know the dates that would be appreciated."

21 Mr Wyner responded to that email by an email dated 19 August 2014, again copied to Mr Ford, as follows [emphasis added]:

"I have spoken to Kim Hansen (our CFO) re: the proposed date for the review and he has suggested that we wait until after the anniversary date to re-quantify the portfolio value (probably later in November).

Having said this, we are bound under contract to make the 1st instalment payment on 1 November 2014 so this payment will be made regardless.

I trust this is OK - would you like to propose a revised date for our get together at some stage later in November?"

22 Despite at least one further brief communication from Ms Golden on behalf of Ford Kinter to Mr Wyner on 6 October 2014, "following up to see if we can coordinate a date for the audit of the FKA portfolio at some stage in November", that audit never occurred. This is because, in the meantime, Mr Wyner and Mr Ford began exchanging emails about an allegation that Petplan had poached a Ford Kinter client that Ford Kinter had transferred to Reliance under the deed. By a letter dated 29 October 2014 from Perry Abbott, Executive Director of Reliance, to Mr Ford, Reliance stated as follows:

"I refer to the email provided by David Wyner dated the 23rd September 2014.

We are now in possession of information that confirms you are in breach of your obligations under the above-mentioned [the deed] under clause 11 Non-Completion [sic - should be "Non-Competition"].

As you would be aware under clause 2.2 Purchase Price, the Second and Third instalments are not payable if there is a breach under the Agreement and in particular clause 11. As these obligations have now been clearly breached, Reliance Franchise Partners will not be making either the Second or Third instalment.

I wish to take the opportunity to remind you of your requirements to continue to fulfil all the obligations under the Book Sale Agreement, in particular under clause 11. Failure to do so will cause further action being taken.

We now consider this matter closed."

23 Mr Ford gave evidence that by the time he received this letter, he had not received any information from Reliance that the "Renewal Revenue" had increased or decreased or stayed the same. He said that he "attempted to talk to Mr Wyner about these matters, but his information seemed to dry up at that period of time and I was being referred to WA" (Western Australia was the location of the Reliance head office). Mr Ford sent emails following up on payment during early November despite the letter of 29 October 2014 and then engaged solicitors M&K Lawyers to pursue the matter.

24 M&K Lawyers wrote to Reliance on 18 November 2014 both requesting details of the conduct that Reliance alleged gave rise to a breach of clause 11 of the deed and denying any such conduct. Having received no response, M&K Lawyers wrote again to Reliance on 16 January 2015 stating (among other things):

"Reliance has not paid the second instalment, which was due and payable on 1 November 2014 under the terms and conditions of the Agreement. Additionally, the representations made in your letter dated 29 October 2014, indicate that Reliance does not intend to pay either the second or third instalment.

As we have not received a response to a letter within the time specified, we consider that there are no grounds to your claim that our clients breached clause 11 of the Agreement.

In our view, the representations made in your letter of 29 October 2014 amount to an effective repudiation of your obligations under clauses 2.1 and 2.2 of the Agreement and our client reserves the right to accept that repudiation."

25 This letter prompted a series of emails between Reliance and M&K Lawyers, including an email from Simon Owen of Reliance dated 20 January 2015 providing brief particulars of the alleged breach by Ford Kinter of clause 11 of the deed, followed by discussion of the adjustment of the purchase price as follows:

"Finally, clause 2.2(b) allows for the adjustment of the purchase price based upon the renewal revenue for the 12 months ending 30 June 2014. Whilst this has not been calculated it is expected that there will be very little further money due to your client once this calculation has been applied, assuming that there is any further obligation in light of the breaches outlined.

This calculation will be undertaken as a matter of urgency and we will advise the outcome soon."

26 M&K Lawyers responded to this email by letter dated 3 February 2015 setting out brief grounds for denying any breach of clause 11 of the deed and stating: "We note that we have yet to receive any adjusted purchase price calculations based upon the renewal revenue for the 12 months ended 30 June 2014." The letter went on to state that in the absence of any verifiable adjustments to the purchase price in accordance with clause 2.2(b) of the deed, M&K Lawyers had been instructed to commence proceedings. Mr Ford's evidence was that no adjusted price calculations based upon the renewal revenue for the 12 months ended 30 June 2014 were provided by Reliance. These proceedings were commenced by writ dated 11 March 2015.

27 The statement of claim indorsed on the writ includes pleas at paragraphs 8, 9 and 15 referring to Reliance's allegation of breach of clause 11 of the deed by Ford Kinter and Reliance's "unwillingness to comply with the remaining terms of the Agreement by paying the Second Instalment and/or the Third Instalment". By paragraph 16 of the statement of claim, Ford Kinter alleges that the matters referred to in paragraphs 8, 9 and 15 amount to a repudiation of the deed by Reliance, "which is accepted by [Ford Kinter]". It then claims that Reliance is indebted to Ford Kinter in the sum of $932,397.95, particularised as the total of the Second Instalment and the Third Instalment.

28 Reliance's original defence dated 18 May 2015 relied on three discrete defences to the effect as follows:

• first, alleged breaches by Ford Kinter of the non-competition provisions in clause 11 of the deed, entitling Reliance to withhold payment of the Second and Third Instalments pursuant to clause 2.2(d) of the deed (paragraph 7A to 7G of the defence);

• second, that the determination prescribed by clauses 2.2(b) and (c) of the deed produced the result that there was zero payable by Reliance to Ford Kinter in respect of the Second and Third Instalments (paragraph 18 of the defence); and

• third, that if there was any sum payable by Reliance to Ford Kinter, Reliance was entitled to set-off against that sum damages for breach of warranty or misrepresentation, in respect of Ford Kinter's representation that its brokerage and commission revenue was such that the Renewal Revenue for the purposes of the Initial Purchase Price Calculation was $1,434,273.81 (paragraphs 19 to 29 of the defence).

29 The first defence above was the formal pleading of the allegation of breach of the non-competition provisions made in the letter from Reliance dated 29 October 2014 and particularised in the email from Mr Owen of 20 January 2015. However, on the first day of trial, counsel for the defendant confirmed that Reliance would not be pressing that allegation. The following morning I granted leave to Reliance to file and serve an amended defence that effectively withdrew not only the defences based on alleged breaches of the non-competition provisions in clause 11 of the deed, but also the breach of warranty and misrepresentation allegations (the third defence described above).

30 Thus the trial proceeded only on the question of construction of the deed and the calculation of the Second and Third Instalments pursuant to clauses 2.2(b) and (c) of the deed.

31 Mr Ford accepted in cross-examination that clause 2.2 of the deed was a contractual mechanism designed to "iron out the wrinkles" in the revenue of the business in the 20 months after the 1 November 2013 "effective date". And while he accepted that there would be some attrition of clients, he denied that "he knew full well that revenue would drop off". His evidence was that there would be a fall in revenue through client attrition, but there would also be a rise from increases in premiums paid by ongoing clients and that these would counteract each other.

32 Mr Ford explained that premium increases occurred for a range of reasons including:

• "they bought more product" (by which I understood Mr Ford to mean ongoing clients paid for an increase in cover);

• the value of the asset insured (such as an office building) increased: "so if you own this particular building that we're in today, it might be $50m worth of building today, but on renewal that becomes $55m because the cost of building has gone up"; and

• the fact that premium rates in general go up each year.

33 Later in his evidence Mr Ford confirmed that it was not a matter of there being the certainty of a fall and that there "might" be a rise. He said in substance that there was certainty of both fall and rise and that, after applying the mathematical formula in clause 2.2, there would "normally be a rise". He also gave evidence that, once he sold the insurance book, he could not do anything to ensure client retention, but added:

"You're forgetting that the purchaser has as much as a vested interest obviously as we do, and if he was having difficulty, for example with a client or clients, it would be normal for him to have a discussion as to what we could jointly do to ensure that the client does remain with the business. That is normal business practice."

34 In my view, the evidence establishes that clause 2.2 was accurately described in the heads of agreement as a "rise and fall" clause. It was intended to accommodate the potential for both an increase and a decrease in Renewal Revenue within the meaning of the deed. It thus could operate for the benefit of either party, depending on, on the one hand, the level of client retention in the 20 months after the business transferred on 1 November 2013 and, on the other, increases in premium paid by retained clients.

35 Reliance submits that while some time has been spent on the evidence from the experts, its significance and effect is of very short compass. I agree. Indeed, given my findings on the question of the construction of clause 2.2 below, the significance of the expert evidence is even further diminished. That said, it is appropriate that I summarise those aspects of the evidence that inform my conclusion that Ford Kinter's expert Mr Rathner has correctly concluded that the Second and Third Instalments cannot be calculated.

36 There were a total of five experts reports filed in the proceeding. In chronological order they were:

• the report of Darryn Hockley of Grant Thornton on instructions from Reliance dated 15 October 2015 ("first Hockley report");

• the report of Darryn Hockley of Grant Thornton on instructions from Reliance dated 23 May 2016 ("second Hockley report");

• the report of Gideon Rathner of Lowe Lippmann on instructions from Ford Kinter dated 12 May 2017 ("first Rathner report");

• the report of Gideon Rathner of Lowe Lippmann on instructions from Ford Kinter dated 19 October 2017 ("second Rathner report");

• the report of Gideon Rathner of Lowe Lippmann on instructions from Ford Kinter dated 23 October 2017 ("second Rathner report"); and

• the joint report of Gideon Rathner and Darryn Hockley on the joint instructions of Ford Kinter and Reliance dated 23 October 2017 ("joint report").

37 Mr Rathner and Mr Hockley both gave evidence in the proceeding in the presence of each other, but not concurrently. There was some discussion during the trial about whether there may be some advantage in all or part of their evidence being given concurrently, but both parties ultimately eschewed this approach. Instead, there was general acceptance by the parties that if anything arose in the course of Mr Hockley's evidence that warranted some further evidence from Mr Rathner, there would be no objection to Ford Kinter re-opening its case for that purpose. In the end, no application to recall Mr Rathner was made.

38 Ford Kinter's expert Mr Rathner is a partner with Lowe Lippmann, Chartered Accountants & Business Advisors. He obtained a Bachelor of Economics from Monash University in 1983, became a Member of Chartered Accountants Australia and New Zealand in 1987 and a Registered Liquidator in 1990. Mr Rathner's resume discloses that he has expertise in acting as a Special Referee appointed by the Supreme Court of Victoria, investigating business solvency and forensic accounting investigations.

39 Reliance's expert Mr Hockley is a partner of Grant Thornton Australia. Mr Hockley's curriculum vitae confirms that he holds a Bachelor of Business (Accounting), a Graduate Certificate in Forensic Studies (Accounting) and a Graduate Diploma of Applied Finance and Investment, but identifies neither the institution at which those qualifications were obtained, nor the dates they were obtained. I take it from the statement in the curriculum vitae that Mr Hockley "has over 20 years of local and international Chartered Accounting experience", that Mr Hockley commenced working as a chartered accountant in about 1996. Mr Hockley's curriculum vitae also states that he is a Member of the Institute of Chartered Accountants Australia and New Zealand and a Member of the Financial Services Institute of Australia, but again does not provide any dates for the commencement of those memberships.

40 It was not in dispute that there were significant deficiencies in the data on which each expert based his conclusions. The fundamental difference between the experts concerned the impact of those deficiencies on the calculation of the Second and Third Instalments pursuant to clauses 2.2(b) and (c) of the deed. Mr Hockley was willing to conclude, despite the deficiencies, that the amount payable by Reliance to Ford Kinter in respect of the Second and Third Instalments was zero. For his part, Mr Rathner considered the deficiencies were of such magnitude, that the Second and Third Instalments could not be determined.

41 The nature of the deficiencies was adverted to in the second Hockley report under the heading "Limitations of scope" in terms as follows:

"Reliability of data- In preparing our report we have base [sic] our analysis on the excel data files provided by the Defendant entitled 'Copy of Lost Clients Only-FINAL 06-10-15 FKA Comparison Report' ('Lost Clients Report'), 'Lost Income Current Clients-FINAL 06-10-15 FKA Comparison Report' ('Lost Income Report') and 'Updated on 7.4.16 to only show 2015 with one account name and profits for duplicates' ('2015 Lost Income Report'). We have conducted sample testing of the data contained in the excel worksheets of the Lost Clients Report and Lost Income Report having been provided direct access to the Defendant's electronic records. We conducted sample testing of the data contained in the 2015 Lost Income Report by requesting copies of reports from the clients WinBeat system to verify policies. However we have not verified all data to source documents and as such our analysis and conclusions are limited by the reliability, completeness and accuracy of the Defendant's extracts.

MYOB Data- In preparing our report we have relied upon the available information extracted and provided to us from MYOB. We have not verified the relevant information from MYOB and as such our analysis and conclusions are limited by the MYOB data provided to us.

Renewal Revenue Period- We note the Book Sale Agreement states "the parties will determine the value of 2x Renewal Revenue for the 12 months ending 30 June 2014 using the vendors commission rates which were in force at the effective date". The Defendant is not in possession of the Plaintiff's Renewal Revenue for the period 1 July 2013 to 31 October 2013. As such, we have used Renewal Revenue for the 12 months ending 31 October 2014 as a proxy for Renewal Revenue for the 12 months ending 30 June 2014 (per Statement of Defence, paragraph 18 (ii), filed 19 May 2015)."

42 Mr Rathner refers in the first Rathner report to this section of Mr Hockley's report and adds:

"Various spreadsheets have been extracted from the WinBeat and BAIS system (by Reliance Partners) yet there are no specific date ranges specified within the spreadsheet other than by the names of the sheets within the spreadsheets. We are unable to confirm whether or not all these sheets are accurate and complete or whether they have been agreed to the underlying source data/programs... The MYOB sheet within the spreadsheets have a date range noted in the heading, some dates appear to be missing within the data of the MYOB sheet. A sequence review of source documents reveal some are missing, raising concerns as to whether the data supplied within the MYOB download is complete.

In the email from Rebecca Ferrier, from Reliance Partners, dated 9 October 2015...she explains the process undertaken in extracting reports and comparing the data. In particular she made the following comment 'Many items did not show in this comparison due to various reasons, so the remainder was looked up individually and then segregated into the following categories...'. The need to individually review the number of items on the list raises questions of accuracy and completeness of the data provided. We note in the review of the data that the Defendant changed client code references within the WinBeat system post the Effective Date. This effects [sic] 41% of entries which require to be looked up individually and then segregated. As an example, "Lost Clients Only - FINAL 06-10-15 FKA Comparison Report' sheet 'Summary of Original List', [1545] rows (of 3791 rows) in the spreadsheet require manual review and allocation."

43 Thus the deficiencies in the data stemmed from essentially two causes. First, (as contemplated by the heads of agreement and the deed) when Reliance assumed control of the Ford Kinter business in November 2013, it engaged in a process of transferring all of Ford Kinter's client data from Ford Kinter's BAIS system to its own system (primarily an insurance broking software product known as "WinBeat"). In the course of doing so, client codes (perhaps as well as other information) were altered, with the result that client reports generated from WinBeat in around September 2015 for the purpose of instructing Mr Hockley, could not be automatically matched to the Ford Kinter client list forming part of the deed. This in turn led to the process of "individual review" of client data and the manual preparation by Rebecca Ferrier of Reliance of the spreadsheets referred to in her 9 October 2015 email. Ms Ferrier was not called to explain or verify her review process or otherwise vouch for the accuracy of the spreadsheets. I set out below the evidence of Mr Hockley and Mr Rathner about their testing of the data in the spreadsheets.

44 Second, despite having unfettered access to all of Ford Kinter's client data both before and for some time after the business transferred on 1 November 2013, by mid-2015 Reliance apparently no longer had access to data disclosing Ford Kinter's revenue for the period 1 July to 30 October 2013. Why this was so was never adequately explained. Mr Ford maintained that Reliance had the data. His evidence on this issue was consistent with clause 1.5 of the heads of agreement, which provided (in part) that "[Reliance] will arrange to transfer purchased client data and history to its own Winbeat system" [emphasis added]. Reliance did not call any lay witnesses, and thus offered no explanation for its inability to provide the data to Mr Hockley. In any event, without that data, Mr Hockley was unable to do any calculations of Renewal Revenue for the twelve months ending 30 June 2014 as required by clause 2.2(b) and instead made calculations of the Second and Third Instalments based on "proxy periods" of the 12 months ending 31 October 2014 and 31 October 2015.

45 In addition to the two factors giving rise to deficiencies in the data discussed above, the evidence was that the data concerning the premium funding and direct debit income recorded in the MYOB accounting software, was extracted by Reliance personnel out of MYOB and provided as an Excel worksheet. This also compromised the reliability and evidentiary value of the data, because neither expert could verify its accuracy and no one from Reliance was called to vouch for the extraction process. For example, Mr Hockley's evidence was to the effect that, as he was not given access to Reliance's MYOB system, he was unable to test or verify any of the data that Reliance sent to him concerning those two categories of income.

46 Ford Kinter's revenue data for the period 1 July to 31 October 2013 was eventually located by Mr Ford on an old Ford Kinter computer server and provided by Ford Kinter to Reliance in June 2017. Mr Hockley's evidence was that this data was provided to him on 25 September 2017, long after he had completed his two reports. Mr Rathner included a brief summary of that data in paragraphs 41 to 47 of the second Rathner report and Mr Hockley agreed in evidence that Mr Rathner's summary faithfully recorded what the data showed.

47 Mr Rathner notes in the first Rathner report that Ms Ferrier's spreadsheets calculate that the Ford Kinter clients lost before 1 November 2013, when Reliance took control of the business, represented revenue totalling $68,375.57. He confirms that these clients were excluded from the list of clients used to identify "Renewal Revenue" for the purposes of Mr Hockely's calculation of the Second and Third Instalments. Mr Rathner compared the clients in Ms Ferrier's spreadsheet to the list of clients forming part of the deed and identified seven clients that were shown in Reliance's WinBeat and BAIS report as generating broker fees and broker commissions. Thus it would appear that at least these seven clients had not in fact been "lost" as at 1 November 2013.

48 Mr Rathner identified in his evidence other searches that might reveal still more mistakes in Ms Ferrier's "lost client" spreadsheet. For example, Mr Rathner noted that some clients listed as lost were unnamed in the spreadsheet, so it was not possible to check the accuracy of that entry in the spreadsheet against lists of current clients. Minor changes made to the name of a client during the process of transferring data between the BAIS and WinBeat systems also undermined the checking process. Mr Rathner's searches only picked up identical names. Mr Rathner gave evidence to the effect that a minor change in the way a client is named (he gave the example of a client being named as "Gideon Rathner t/as Lowe Lippman" in BAIS, but on transfer to WinBeat being entered as only "Lowe Lippman") could result in the client being incorrectly treated as a lost client.

49 Mr Hockley's evidence was that he did not test a large sample of clients from this spreadsheet. He agreed that he tested only four of the 375 clients identified in that spreadsheet as "lost". He accepted that he relied on the information provided by Ms Ferrier as to which clients had been lost, although he did check her calculations.

50 The extent of the clients allegedly lost before the transfer of the business to Reliance on 1 November 2013 disclosed by Ms Ferrier's spreadsheets is surprising. It cannot be attributed to the leakage of clients that the evidence suggested might be expected when a brokerage changes hands. Nor was there any evidence that the client list forming part of the deed overstated the number of clients "sold". As indicated above, a defence to this effect originally advanced by Reliance was abandoned early in the trial.

51 In relation to the first of the two "proxy periods" used by Mr Hockley in his calculations, Mr Rathner gave evidence both orally and by paragraph 39 of the second Rathner report, concerning the process by which Reliance personnel manually adjusted the data to remove instances of duplicated policy numbers. In substance, because the spreadsheet prepared by Reliance did not include any date range, Mr Rathner was unable to ascertain from the data what period the duplicates related to and thus whether they were in fact duplicates. He referred in his report to an email dated 7 April 2016 from Gill Jowett-Blinman of Reliance to Mr Hockley (among others) concerning the preparation of the schedule that identified included adjustments for duplicates. The email states:

"I have tried very hard with my limited skills of Winbeat to answer questions re the dual counting as there were some clients who had several policies. I had to try and locate the most appropriate cell on the spreadsheet so here is the spreadsheet and what I did. Yes I did amend prior year figures. Also I did not sum the columns as they did not seem to correctly add."

52 These observations concerning the preparation of the spreadsheet by Reliance hardly inspire confidence about the reliability of the data it contains. Unsurprisingly, Mr Rathner concludes in relation to Mr Hockley's calculations prepared on the faith of that spreadsheet that "we are not able to agree that the total is correct". Mr Rathner explained that it was not just this one item that created concerns about the reliability of the spreadsheet. His evidence was that:

"It's an accumulation of all the issues that we raise the report, that there's all these manual adjustments required... It's an accumulation of all these issues [that] give concern as to how reliable and accurate is the information that's been provided from the WinBeat system."

53 Mr Rathner agreed that the email confirms that someone at Reliance had been going through the data, drawing conclusions, making assumptions and then adjusting the data accordingly. Mr Rathner also noted in his report and evidence what he considered were deficiencies and gaps in the spreadsheets prepared by Reliance that purported to show a substantial fall in direct debit and premium funding. His report in respect of these categories of revenue concluded that: "I am not satisfied that the information provided is accurate and complete and therefore cannot be relied upon to calculate the second instalment".

54 In the course of his examination-in-chief, Mr Hockley accepted that the process of transferring data from BAIS to the WinBeat system could have involved errors in data entry, but he relied on Rebecca Ferrier who "spent, I believe, 6 to 8 weeks actually doing a manual reconciliation" of the data. His evidence was that this gave him comfort that "a fair bit of work was put in by Reliance to actually try and reconcile" the data. Mr Hockley later clarified in cross-examination that he did not know whether Ms Ferrier spent six to eight full weeks undertaking this reconciliation. He explained that she was doing this work in addition to her day-to-day job and it took her a period of six to eight weeks to give him the information.

55 In the second Hockley report, Mr Hockley states in respect of Reliance's 2015 lost client report that:

I sighted reports from the WinBeat system to verify the amount of income received from a sample of nineteen customers with a net profit for 2015 was a negative or had varied significantly to the prior year. There were a number of these customer's balances which could not be reconciled between the WinBeat system and detailed transaction report provided by the client. With this in mind, I adjusted the Current clients-Lost income for the amounts set out in table 50 below to exclude:

1. the client codes with net losses for the year ended 31 October 2015; and
2. the net profits for the year ended 31 October 2015 for the customer balances that significantly varied to the previous year and could not be reconciled to the WinBeat System or detailed transaction report.

...

I reviewed a sample of the net profits per customer code and identified a number of codes that were assigned to 2 separate customers. The Defendant amended the spreadsheet to fix these duplications. In completing this exercise, the Defendant also confirmed that a number of client codes had been duplicated in the data for the 12 months to 31 October 2014 and accordingly amended the net profit for that period and provided an updated report. As a result I have updated my assessment of the second instalment to take into account these amendments."

56 In commenting on this part of the second Hockley report, the first Rathner report notes that Mr Hockley made a total of 37 adjustments to the sample of 19 customers examined by Mr Hockley, and then states:

"We question the reliability of data, given such an adjustment rate on a small sample and question whether more testing ought to have been performed to ensure accuracy of the information provided."

In his evidence, Mr Rathner further explained that the need to make 37 adjustments to the 19 clients: "just again gives me further concern as to the reliability and accuracy of the information being provided from the WinBeat system. It seems to me that 19 clients resulting in 37 adjustments is a significantly high number of adjustments."

57 The second Rathner report summarises three further tasks that Mr Rathner was instructed to undertake in relation to the calculation of the Second and Third Instalments payable under the deed. These were:

• to review data extracted from documents subpoenaed from five of Ford Kinter's principal underwriters;

• to review reports extracted from PSC Share Nominees Pty Ltd ("PSC") concerning former Ford Kinter clients (Reliance had on-sold the Ford Kinter insurance book to PSC in January 2016, as part of a sale of a larger insurance portfolio); and

• to look at revenue data from Ford Kinter for the period 1 July to 31 October 2013, which had been located by Mr Ford on an old computer server in around June 2017.

58 None of these tasks (either individually or together) put Mr Rathner in a position to calculate the Second or Third Instalment, for the reasons set out in the second Rathner report and explained further during his evidence. However, they did serve to reinforce his conclusion that the information produced from Reliance's WinBeat system could not be relied on to determine client revenue for the relevant periods. For example, sampling of the data extracted from the documents subpoenaed from underwriters identified a number of continuing clients that had been noted in the Reliance spreadsheets as lost clients. Similarly, the Ford Kinter client data for the period 1 July to 31 October 2013, suggested that the number of clients that Reliance had identified as lost before the business transferred on 1 November 2013 may not have been on the scale suggested by those spreadsheets.

59 The reports extracted from PSC were also the subject of the joint report. That report states that the reports extracted from PSC included a Sales Transaction List and a Client Ranking report. Mr Hockley and Mr Rathner considered that these reports should include identical information including client name, client code and total commission and fees. However, the two reports did not agree. Both experts therefore concluded that the information provided in the PSC reports was unreliable and a calculation of the Second and Third Instalments based on that information could not be done.

60 Mr Rathner was pressed in cross-examination about his unwillingness to undertake a calculation of the Second Instalment and Third Instalments based on the data available to him, despite the deficiencies in the data. He agreed that he could undertake the calculation as a mathematical exercise but, knowing there was missing information, such a calculation would not have answered the question he was asked. He said:

"You can do a calculation but, if the calculation's going to come up with an answer that is just meaningless, then why do the calculation?"

61 Mr Hockley did not dispute that he relied on the data provided to him by Reliance (including by Ms Ferrier), but sought to justify that reliance by referring to the testing of the data undertaken by his team and what he knew about the time taken by Ms Ferrier to complete the reconciliation process. His evidence on these matters was unconvincing. He conceded (with some initial reluctance) that he tested only four of the 375 clients that Ms Ferrier had identified as lost in the "Lost Client Report" and discussed in the first Hockley report (at paragraph 13(a)). Further, his own supplementary report on updated lost client data (the second Hockley report) disclosed that he made 37 adjustments to the 19 customers he sampled for the purpose of testing Reliance's "2015 Lost Client Report" (at paragraph 50).

62 Mr Hockley also qualified his initial evidence about the time Ms Ferrier spent reconciling the lost client data as discussed above. I accept that it may have taken six to eight weeks for Ms Ferrier to provide the results of reconciliation, but it is clear that Mr Hockley did not know how long Ms Ferrier spent on the task. Thus any comfort that Mr Hockley took from the amount of time spent by Reliance personnel in compiling the data, was misplaced. More generally, I consider that the level of testing and scrutiny of the underlying data by Mr Hockley was insufficient to overcome the deficiencies and inconsistencies in that data identified by the experts.

63 In my view, therefore, Mr Rathner was correct to conclude that the data on which he had been asked to opine was so compromised, that making a calculation assuming the accuracy of the data would have been an entirely arid exercise. In the absence of any evidence explaining and verifying the process by which the data was compiled by Reliance personnel, or otherwise responding to the deficiencies identified by both experts, I am satisfied the data was incapable of forming the basis of any finding about the amount of the Second and Third Instalments.

How is clause 2.2 of the agreement to be construed?

64 The principles of construction applicable to the deed were not in dispute in the proceeding. Both parties referred to and relied on the decision of the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd ("Mount Bruce").[1] Mount Bruce confirms that, in determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

65 However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract. It may be necessary in determining the proper construction where there is a constructional choice. Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context. What is impermissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

66 Unless a contrary intention is indicated, the court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.

67 Ford Kinter submits that the words "subject to" in clause 2.2(a) ought to be read in context. It concedes that, in more common written agreements (for example, a contract for the purchase of land that is subject to finance), the words convey a barrier to the obligations that follow, such that if the purchaser does not obtain finance, then it is excused from the obligation to purchase. However, placing a similar construction on the words in this case would permit Reliance to avoid altogether the obligation to pay the Second and Third Instalments. Ford Kinter argues that this construction could not be what a reasonable person in the position of the parties at the time of executing the deed objectively intended.

68 Ford Kinter further submits the words "subject to" should be read in a way that does not "close the gate" on its entitlement to payment under clauses 2.2(a)(ii) and (iii) where, for whatever reason, either or both of the parties was unwilling or unable to engage in the determination process contemplated by clauses 2.2(b) and (c) "as soon as practicable", or at all. It further submits that if resort to the determination process in those clauses is mandatory, then there would have been no need to have included in clause 2.2(a) a mechanism for calculating the Second and Third Instalments by reference to the "Initial Purchase Price Calculation". The substance of clauses 2.2(b) and (c) could instead have been used in place of (respectively) clauses 2.2(a)(ii) and (iii). Ford Kinter submits: "put simply, clauses 2.2(a)(ii) and (iii) would have no work to do in determining the instalments due".

69 For its part, Reliance submits that there is no real ambiguity in the provision: "The contract is capable of only one construction. No alternative can truly arise other than by reference to a tortuous logic". According to Reliance, that construction is simply that:

• the initial purchase price as calculated by reference to the revenue for the year ended 30 June 2013 was never going to represent the final purchase price;

• the initial purchase price was recalculated after 12 months and that adjusted purchase price then became the benchmark to determine the amounts that are to be paid; and

• a further recalculation took place on the second anniversary and that then determine the final purchase price. The actual amounts payable within calculated by reference to that benchmark.

70 Reliance argues that the Ford Kinter approach is untenable:

"It ignores the fact that each of [clauses 2.2(a) and (b)] provides that 'the parties will determine the value'. It is a mandatory obligation imposed upon both parties to the agreement to adjust the purchase price in the manner contained in clause 2.2(b)-(c). It does not afford either of the parties any opportunity to avoid that obligation. It is not, for example, a reasonable endeavours or a best endeavours test which might allow for a sought for or desired outcome to not be attained. It is mandatory."

71 Distilling these competing approaches, the question is whether the determination process provided for in clauses 2.2(b) and (c) is either:

• a mechanism for recalculating the Second and Third Instalments, which are otherwise payable under clause 2.2(a); or

• a pre-condition to the payment of any sum by way of the Second and Third Instalments.

72 These two approaches to clause 2.2 in my view represent a clear constructional choice, and thus recourse to events, circumstances and things external to the deed is permissible for the purposes of determining the proper construction. That said, the evidence concerning circumstances external to the deed in this case was mercifully limited. In particular, neither party sought to rely on any exchanges of correspondence or drafts of the deed leading up to the point of execution, commonly seen in cases of this kind. On the evidence, there are only two external circumstances that might be called in aid to assist the construction of the deed and, in particular, clause 2.2. The first is the heads of agreement dated 12 September 2013. The second is the evidence of the rise and fall of commission revenue experienced by Ford Kinter, discussed above.[2]

73 Turning to which of the two approaches is to be preferred, the approach advanced by Ford Kinter seems, at first blush, counter-intuitive. As Ford Kinter concedes, the phrase "subject to" commonly presages a circumstance that will excuse altogether compliance with a contractual obligation. However, as a matter of language, this need not be the case. The phrase necessarily imports some qualification or condition affecting the primary obligation, but the nature and extent of that qualification depends ultimately on the proper construction of the words used. And the phrase does not presuppose that the conditioning circumstance will invariably arise:

"In my judgment, the phrase 'subject to' is a simple provision which merely subjects the provisions of the subject subsections to the provisions of the master subsections. Where there is no clash, the phrase does nothing: if there is collision the phrase shows what is to prevail. The phrase provides no warranty of universal collision."[3]

74 In my view, on closer analysis, the construction submitted by Ford Kinter is more persuasive. It sits more comfortably with the language of clause 2.2, in the context of the deed as a whole. It also better reflects the commercial purpose of the provision being, fundamentally, to facilitate the payment in full of the agreed Purchase Price.

75 The "Purchase Price" is defined in the deed as "the consideration for the sale of the Assets as determined under clause 2.2". Clause 2.2 begins (in paragraph (a)) by providing in substance that the Purchase Price is the "Initial Purchase Price Calculation" (in turn defined as 2 times Renewal Revenue for the 12 months ended 30 June 2013). Sub-paragraph (a) then proceeds to provide in sub-paragraphs (i) to (iii) for the mechanics of payment. Importantly in my view, each of these sub-paragraphs sets the percentage payable by reference to the "Initial Purchase Price Calculation". In the case of sub-paragraph (i), this is consistent with clause 2.2 of the deed clearly contemplating that (absent default) Ford Kinter would be paid 67.5% of the Initial Purchase Price Calculation regardless of the Renewal Revenue in later years.

76 But in the case of sub-paragraphs (ii) and (iii), the draftsperson had a choice. They could have used either:

• the defined term "Initial Purchase Price Calculation", thus referencing back to the Renewal Revenue for the 12 months ended 30 June 2013; or

• the defined term "Purchase Price", and thus referenced the language used in paragraphs 2(b) and (c), which provided that the recalculated Renewal Revenue in the subsequent years "will be deemed to be the "Purchase Price".

77 In my view, the fact that the draftsperson chose the first of these options is a significant factor in determining the proper construction of clause 2.2 as a whole. Had they instead used the term "Purchase Price" in sub-paragraphs (ii) and (iii), the "Initial Purchase Price Calculation" would have had no role in determining either the Second or Third Instalments. By instead using "Initial Purchase Price Calculation", the draftsperson is in effect creating a default calculation for the Second and Third Instalments based on Renewal Revenue for the 12 months ended 30 June 2013. That default position is then subject to recalculation in accordance with paragraphs (b) and (c), which may result in the "Purchase Price" being calculated as "more or less than the Initial Purchase Price Calculation" [emphasis added].

78 In this sense, I agree with Ford Kinter's submission that Reliance's argument would leave sub-paragraphs (ii) and (iii) with no work to do. Put another way, why include a calculation of the Second and Third Instalments by reference to the "Initial Purchase Price Calculation", if the parties intended that, come what may, the "Purchase Price" would be recalculated? Why not instead use the defined term "Purchase Price" in sub-paragraphs (ii) and (iii) or, better still, dispense with these sub-paragraphs altogether?

79 There are other matters both internal and external to the deed that reinforce this constructional choice. First, there is no mechanism in clause 2.2 or elsewhere in the deed for dealing with the consequences of one of the parties failing or refusing to engage in the determination process contemplated by clauses 2.2(b) and (c). It would be commercially untenable to argue that the parties intended that, due simply to inaction (or in events such as those that occurred here), the obligation to pay the balance of the Purchase Price would never arise. In my view, 2.2(a) gave voice to the fall-back or default position, that unless and until the parties engaged in the determination process under clauses 2.2(a) and (b), the Purchase Price was to be determined by reference to the Initial Purchase Price Calculation.

80 Although not relevant to the question of construction, I note in passing that this appears to be how Mr Wyner viewed the provision. In his email dated 19 August 2014 referred to above[4] proposing the deferral of the determination process until later in November 2014, he stated: "Having said this, we are bound under contract to make the 1st instalment payment on 1 November 2014 so this payment will be made regardless".

81 Secondly, the evidence was that the "Initial Purchase Price Calculation" was not just a temporary or interim calculation. It was arrived at by agreement after extensive due diligence as contemplated under the heads of agreement, and considered negotiation. It was clearly open to either party to initiate the determination process, as Ford Kinter sought to do in August 2014. But it was also open to Reliance to perform the deed by paying the Second and Third Instalments based on the Initial Purchase Price Calculation (as Mr Wyner had initially proposed in respect of the Second Instalment), so long as Ford Kinter did not insist on the determination process. For example, if the parties both considered based on information provided at the contractually mandated meetings to discuss client retention, that the level of client attrition (on the one hand) and premium increase (on the other) was such that the Initial Purchase Price Calculation was close enough to the mark, they might each have come to the view that the cost of the determination process was better avoided.

82 That is not to say that at the time they entered into the deed, the parties were ambivalent about whether the determination process would occur. On the contrary, I am satisfied that both parties would each have been aware of the counteracting forces of the client attrition and premium increases referred to in the evidence of Mr Ford, and each was therefore clearly concerned to preserve a right to adjust the Purchase Price if they considered it in their interest to do so. In the case of Mr Ford, his evidence was that he considered "there would normally be a rise" in premium income. It is therefore likely that he at least anticipated that Ford Kinter would be seeking to exercise that right of adjustment.

83 To that end, clause 2.2 of the deed both mandated and facilitated a process of recalculation of the Purchase Price. (And I use the term "recalculation" advisedly). However, in my view, the process was mandated by clause 2.2(b) and (c) in the sense that it imposed an obligation on both parties to engage in the process and abide the outcome. It was not mandated in the sense that, without it, the obligation to pay the Initial Purchase Price Calculation under clause 2.2(a) did not arise. In my view, this is how the imperative "will determine" in each of clauses 2.2(a) and (b) is to be understood.

84 Thirdly, both parties would also have been aware at the time they entered into to the deed, that the data necessary to make the determinations "as soon as practicable after 30 June 2014 [and 2015]" as contemplated by clauses 2.2(b) and (c), would by then be exclusively within the control of Reliance. Thus only Reliance had the capacity unilaterally to anticipate whether the adjustment in the Purchase Price following the determinations would be up or down, and the extent of the adjustment. And only Reliance had the ability to thwart the determinations entirely by withholding the data.

85 In my judgment, it would give rise to a serious commercial inconvenience, if not a commercial nonsense, if Reliance could avoid paying the Purchase Price in full, simply by (as occurred here) first failing to engage in the determination process in a timely manner, and then putting the data which would enable the process to occur, effectively out of reach. That commercial imbalance is avoided in circumstances where, as I have found, the deed includes a default mechanism the effect of which is that, unless and until the determinations occur, the Second and Third Instalments are calculated by reference to the Initial Purchase Price Calculation.

86 Against that background, it is no answer to the construction advanced by Ford Kinter to say (as Reliance does) that it "would encourage a party to actively frustrate the calculations so as to in turn enable it to contend that the calculations cannot be made". It is trite that: "It is a general rule applicable to every contract that each party agrees, by implication, to do all things as necessary on his part to enable the other party to have the benefit of the contract".[5] In the case of the deed, that general rule is also given express application by clause 12.5 of the deed.

87 So a failure or refusal by Ford Kinter to engage in the determination process would be a breach of the deed, entitling Reliance (as the party not in breach) to (for example) withhold payment of the Second and Third Instalments pending compliance by Ford Kinter with its obligation under clauses 2.2(a) and (b). In that event, Reliance is also uniquely placed to avoid any frustration of the calculation process by producing the data of Renewal Revenue for the years ended 30 June 2014 and 2015 and proffering payment (if any) accordingly.

88 Whereas a failure by Reliance to so engage would be a breach of the deed entitling Ford Kinter to a different set of options than those enjoyed by Reliance, as the party holding both the purse strings and the data. In my view, on a breach by Reliance of clause 2.2(a) and (b), Ford Kinter is entitled to remedies including specific performance, damages (which it might chose to claim if it considered that Renewal Revenue in the years ended 30 June 2014 and 2015 had risen) and (in an appropriate case) repudiation and a right to terminate the deed. If validly terminated by Ford Kinter for breach by Reliance, on the construction of the deed I prefer, Ford Kinter is then entitled to sue for the Second and Third Instalments in the sum owing as at the date of termination, as debt due. As Ford Kinter's statement of claim makes plain, this is the only relief it seeks in this proceeding.

89 I note in passing that I invited Ford Kinter in the course of argument to make submissions on how I might approach the issue of damages, if I was against it on the question of construction of the deed. Ford Kinter has duly done so. However, had it been necessary to do so, I would have accepted Reliance's submission that Ford Kinter has failed to discharge its onus of establishing loss, independently of its entitlement to claim the Second and Third Instalments based on the Initial Purchase Price Calculation as a debt due. As discussed above, the data concerning Renewal Revenue in the years ended 30 June 2014 and 2015 produced by Reliance and reported on by Mr Hockley, is so compromised that I am unable to make any finding about what result might have emerged from a determination in accordance with clauses 2.2(b) and (c) of the deed.

90 Reliance has denied in its defence that its conduct in alleging breach of the deed by Ford Kinter and refusing to pay the Second and Third Instalments, was a repudiation of the deed. However, the issue received only limited attention in written and oral submissions (primarily by counsel for Ford Kinter in response to questions from me during his opening address). In particular, Reliance did not seek to confront directly the allegation that its conduct amounted to a repudiation of the deed. Rather, it sought to side-step the issue by submitting that, in seeking to enforce the deed, Ford Kinter was obliged to prove what was owing under the mandated provisions of clauses 2.2(a) and (b), and had failed to do so.

91 As discussed above, this was certainly one of the options open to Ford Kinter by reason of Reliance's breach. However, on a proper construction of clause 2.2, there was on and from 1 November 2014 and 2015 debts due and payable to Ford Kinter based on the Initial Purchase Price Calculation, which debts remained due unless and until the determinations in accordance with clauses 2.2(b) and (c) took place. It was therefore also open to Ford Kinter (providing it had sufficient grounds to do so) to bring the deed to an end at a time of its choosing, and to sue to recover that debt. I agree with Ford Kinter's submissions to this effect.

92 I also agree with Ford Kinter's submission that the repudiation by Reliance arose from the notice of breach in the form of the letter from Reliance to Ford Kinter dated 29 October 2014, two days before the Second Instalment was due. That letter alleged a serious breach by Reliance of clause 11 of the deed, and stated that "as these obligations have now been clearly breached, Reliance Franchise Partners will not be making either the Second or Third Instalment". The letter concluded: "We now consider this matter closed".

93 The position may have been different if, for example, the only issue had been whether Reliance had acted "as soon as practicable" after 30 June 2014, by seeking to put off the determination to a more convenient time (as in fact it had done in earlier correspondence). There would then be a question as to whether that breach (if proved) was sufficiently serious to amount to a repudiation. Instead, Reliance first sought to delay the 2014 determination and then unequivocally asserted a right to refuse to pay any sums by way of the Second and Third Instalments. And not because (as Reliance sought to prove at trial) the Purchase Price as adjusted under clauses 2.2(b) and (c) was zero, but relying exclusively on an allegation of serious breach by Ford Kinter. Moreover, that allegation was wholly abandoned at trial and can therefore be taken to be unfounded.

94 In those circumstances, I am satisfied that the conduct relied upon by Ford Kinter evinced a clear intention by Reliance not to be bound by the deed and amounted to a wrongful repudiation of the deed. The deed therefore came to an end on Ford Kinter's acceptance of that repudiation, by paragraph 16 of its statement of claim. That termination in turn brought to an end any further obligation on the parties to initiate and engage in the determinations under clause 2.2(b) and (c). But it did not, of course, absolve Reliance from its extant obligation to pay the Third Instalment. That sum was payable by Reliance to Ford Kinter at the time of termination of the deed, and fell due at the latest on 1 November 2015.

What (if anything) is payable by Reliance to Ford Kinter?

95 For the reasons given, Reliance is liable to Ford Kinter under the deed in the sum of $932,397.95.

96 I will order that there be judgment for Ford Kinter against Reliance in the sum of $932,397.95. On the question of interest, my tentative view is that Ford Kinter is entitled to interest on $537,709.50 on and from 1 November 2014 and on $358,688.45 on and from 1 November 2015, payable pursuant to s58 of the Supreme Court Act 1986 (Vic)[6] at the rate for the time being fixed under s2 of the Penalty Interest Rates Act (Vic) 1983.

97 I would also propose to order that Reliance pay Ford Kinter's costs of and incidental to the proceeding (including reserved costs) on the standard basis in default of agreement, unless the parties are able to bring to my attention any matters that might justify a departure from the usual order on costs.

98 I will hear further from the parties on the final form of the orders on interest and costs.

I certify that these 37 pages are a true copy of the reasons for decision of His Honour Judge Woodward delivered on 31 January 2018.

[1] (2015) 256 CLR 104; [2015] HCA 37, per French CJ, Nettle and Gordon JJ at [46]-[52]

[2] At [31] to [34]

[3] C&J Clark Ltd v Inland Revenue Cmrs [1973] 1 WLR 905; [1973] All ER 513, per Megarry J at 520

[5] Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597 at 607

[6] Made applicable to this court pursuant to s50 of the County Court Act 1958 (Vic)